Witnesses said hundreds of armed men and "technicals" - pickups mounted with anti-aircraft artillery or large-calibre machineguns - were camped in Buolfulay village, which straddles the Somali regions of Bay and Bakol, where the incursion reportedly took place, and the Lower Shabelle regions.
"We have sent our militiamen to the border of Bay and Bakol to avoid war with Ethiopians and their allied fighters who want to seize Baidoa," said Yusuf Muhammad Siad, self-declared governor of Lower Shabelle.
"It is a national responsibility to help compatriots under siege by foreigners or those supporting the outsiders," he said. "Ethiopia is behind the looming hostilities in Baidoa."
Baidoa is the capital of Bay and Bakol, and on Tuesday a group of Somali lawmakers said villagers in the region had reported the presence of a large number of armed men backed by about 500 Ethiopian troops.
The legislators also accused Ethiopia of violating a 13-year-old UN arms embargo on Somalia by supplying weapons to various militia.
The charges were immediately denied by Ethiopian officials, but in statements issued here and in Nairobi, the 83 legislators insisted that Ethiopia was attempting to help an ousted Somali warlord retake control of Baidoa.
Siad said there were fears in the region that fighters loyal to Hassan Muhammad Nur "Shatigudud" might move beyond Baidoa into neighbouring areas if they were successful in mounting an attack on the city.
"If they capture Baidoa, those fighters may advance to the neighbouring regions," he said.
Siad and other Somali officials said the reinforcements were aimed at backing the leader of the Rahanwein Resistance Army, Muhammad Ibrahim Habsade, who ousted Shatigudud from control of Baidoa earlier this year.
Fearing imminent violence, about 50 families left Baidoa for Mogadishu on Wednesday, witnesses said, and Habsade vowed to defend the city from attack.
"Our forces are in full readiness for the defence of Baidoa," he said from his stronghold.
The town, 250km from Mogadishu in southern Somalia and about 150km from the Ethiopian border, was the scene of clashes between forces loyal to Shatigudud and Habsade in March.
"The news about weapons brought from Ethiopia is simply lies"
Aden Mohamed Nu "Madobe,
Somali Justice Minister
The fighting revolved around a bitter dispute over where the Somali transitional government should move when it eventually relocates from exile in Kenya.
However, Somali Justice Minister Aden Mohamed Nu "Madobe", named as an alleged recipient of the Ethiopian weapons, rejected the claims as he headed to the tension-hit town to mediate peace.
"The news about weapons brought from Ethiopia is simply lies," he said.
Somalia has been in chaos without any functioning central authority since the fall of Muhammad Siad Barre in 1991 turned the nation into a patchwork of fiefdoms ruled by warlords.
Ethiopia is regarded with deep suspicion by many in Somalia because of its past support for Somali factions opposed to a new government, and many in the lawless nation have vehemently protested the inclusion of Ethiopian troops in a proposed regional peacekeeping mission.