The latest clashes bring the toll from five days of violence to at least 70.
Thousands of civilians fled from their homes as heavy machine gun, rocket and mortar fire reverberated through the streets of several central and northern residential districts in bullet-scarred Mogadishu, witnesses said.
Ahmed Idriss, a Somali peace activist, told AFP: "Seventeen people were killed overnight, mostly by heavy morters shells in Huriwa, Yaqshid, Waharaade and Sisi," referring to neighbourhoods where the fighting has been most intense.
"Seven were killed in Huriwa when a mortar shell hit their residence and 10 others were killed in Yaqshid, Waharaade and Sisi," he said, adding that at least 36 people had been wounded and taken to four hospitals.
Waharaade resident Mukhtar Aden said at least 70% of the neighbourhoods' occupants had fled from the area as the clashes showed no signs of easing, despite widespread appeals for a truce.
Mogadishu media said the toll could be higher than 20 from the overnight clashes between Muslim fighters and those loyal to the Alliance for the Restoration of Peace and Counter-Terrorism (ARPCT).
The latest deaths bring to 70 people confirmed killed and more than 200 wounded in several parts of of the capital since the fighting started on Sunday.
The violence has now eclipsed that recorded over three days in February and four days in March when at least 85 people were killed as the two factions fought each other.
Those incidents had been the bloodiest clashes in the capital since Somalia collapsed into anarchy 15 years ago.
Bullet-pocked buildings testify to
Somalia's lawless condition
Tension in Mogadishu has increased since, with the Islamic courts declaring a holy war against the ARPCT, which was created in February with the US support.
The alliance has pledged to curb the growing influence of the Islamic courts that have gained backing by restoring a semblance of stability to areas in Mogadishu that they control by enforcing Sharia law.
It also accuses the courts of harbouring terrorists and training foreign fighters on Somali soil, charges that Muslim leaders deny but which have been echoed by the US and other Western nations.
Washington has declined to explicitly confirm its support for the alliance although US officials have told AFP the group is one of several it is working with to contain the threat of Muslim extremists in Somalia.
Last week, the state department acknowledged that the US was working with "responsible individuals" in Somalia to prevent "terror taking root in the Horn of Africa".