Residents said on Thursday they awoke to find the militia, supported by local clerics, in control of a key bridge and a prison without any fighting.
The town near the Ethiopian border has been under the control of a governor appointed by Somalia's interim government.
The Islamists, linked to Sharia courts, become a force to be reckoned with after they seized the capital from secular commanders after a fight last week.
The interim government is Somalia's 15th attempt to bring central rule to a country where clan-control has prevailed since Mohamed Siad Barre was ousted in 1991.
But it is based in Baidoa because it lacks the muscle to attempt a move to the capital that could involve a confrontation with militia forces.
The Islamists' capture of Baladwayne and the critical town of Jowhar on Wednesday gives them control of a sizeable swathe of southern Somalia stretching from Mogadishu at the coast almost to the Ethiopian border.
Meanwhile, hundreds of supporters of the Islamists demonstrated on Thursday against a proposal to deploy foreign peacekeepers.
Fighters of the Islamic Courts
want to impose Sharia law
A day earlier, the country's transitional parliament approved a plan for the deployment of Ugandan and Sudanese peacekeepers to help it try to establish stability and its authority.
The protesters in Mogadishu said the parliament had been manipulated by other countries in the region, namely Somalia's historic foe Ethiopia, which they accused of wanting to occupy their country.
The Islamist fighters have repeatedly rejected the idea of foreign troops.
Another demonstration in favour of peacekeepers was held in Baidoa on Thursday.
In another development, the Islamist militias and the interim government in Somalia have backed Yemen's proposal for talks to bring peace, Aljazeera's correspondent in Sana reported on Thursday.
The head of Joint Islamic Courts, Sheikh Shariff Sheikh Ahmed, and Abdullah Yusuf Ahmed, the president of the interim government, agreed to the proposal for talks inside Somalia or in a neighbouring country during telephone conversations with Ali Abdullah Saleh, the Yemeni president, AFP said quoting a Yemeni official who requested anonymity.
The two men backed dialogue because "it is liable to bring about an understanding and establish security and stability in Somalia," the official said, without saying whether a date for talks had been agreed.
Meanwhile, a US-organised group of nations concerned about the rise of Islamist factions has lent its support to the interim Somali government and demanded free access so aid groups can help the Somali people.
The first meeting of the International Somalia Contact Group on Thursday was one of the few major international initiatives towards the nation in the years since UN peacekeepers withdrew in 1995.
The interim government's base
in Baidoa is now under threat
The group consists of the US, Britain, Sweden, Norway, Tanzania, Italy and the European Union, with the UN and the African Union as observers.
The Intergovernmental Authority on Development and the League of Arab States will also be invited as observers in the future.
In its meeting, the group urged dialogue between the government and the Islamist fighters who have taken over the capital Mogadishu and other areas of the lawless country.
The interim government said it was encouraged by the group's first meeting, and welcomed the call for dialogue with the Islamist groups. But it wants the group to ease an arms embargo and hold a donors' conference for Somalia.