Sheikh Sharif Sheikh Ahmad, chairman of the Islamic Courts Union, said Ethiopian troops had entered Somalia through the border town of Dolow in the southwestern region of Gedo at 8am (0500 GMT).
"We want the whole world to know what's going on," Ahmed told journalists. "Ethiopia has crossed our borders and are heading for us. They are supporting the transitional federal government.
"They have deployed a lot of soldiers around the border towns, which is why we have been saying that Ethiopia is going to send in troops to Somalia," the cleric said.
However, Bereket Simon, an Ethiopian minister without portfolio and close ally of Meles Zenawi, the Ethiopian prime minister, said Ethiopian soldiers were at the border but had not crossed it.
"Ethiopia has a right to monitor its border," he said.
"Ethiopia has not crossed the border. So far, the fundamentalists (Somalia Islamists) have occupied Baladwayne and are marching toward the Ethiopian border.
"Ethiopia hopes that they will not cross the border."
Aljazeera's correspondent in Mogadishu cited witnesses as saying more than 100 Ethiopian trucks had massed along the road to Bedawa, where the headquarters of the interim Somali government is located.
Separately, a spokesman for the Ethiopian foreign ministry told Aljazeera that Addis Ababa had no interests in interfering in Somalia.
Abdullahi Yusuf, Somalia's interim president and a former regional commander, is closely allied with the Ethiopian government, which was instrumental in his election after peace talks in Kenya in 2004.
The Ethiopian government had no immediate comment.
The Islamic Courts Union is the group behind the militiamen that captured the Somali capital on June 6 after months of on and off fighting with an alliance of warlords backed by the US.
Islamist militiamen captured
Mogadishu on June 6
More than 330 people died in the fighting, most of them civilians. The group now controls most of southern Somalia.
The Islamist group, accused by the United States of harbouring al-Qaeda, portrays itself as free of links to Somalia's past turmoil and capable of bringing order and unity.
Leaders of the Islamic Courts Union deny that they harbour any terrorists.
An Islamic Courts Union spokesman, meanwhile, said the last two main regional commanders who lost the Somali capital to the militia fled the country on board a US warship on Saturday.
But the US Naval 5th Fleet, which patrols international waters off Somalia and is based in Bahrain, said it had no reports that any of its ships had picked them up.
Abdi Rahman Osman, spokesman for the Islamic Courts Union, said Muse Sudi Yalahow and Bashir Rage left Mogadishu late on Friday on a boat and were picked up by a US warship off Somalia's coast early on Saturday.
"We want the whole world to know what's going on. Ethiopia has crossed our borders and are heading for us"
Sheikh Sharif Sheikh Ahmad,
Islamic Courts Unions chief
US officials have acknowledged backing the commanders against the Islamist group.
The departure of Yalahow and Rage from Mogadishu would mean the 11-member regional commander-led Alliance for the Restoration of Peace and Counterterrorism has collapsed.
Most of them have publicly declared their resignations from the group and retreated to their clans or expressed support for the Islamic Courts Union.
Somalia has been without an effective central government since the fall of Mohamed Siad Barre in 1991.
The Islamist group's only competition for control of southern Somalia is Yusuf's transitional government.
The government is based in Baidoa, 250km northwest of the capital, Mogadishu, because of instability in Mogadishu.