A member of parliament in Somalia said that six armoured vehicles from Ethiopia had moved into the Baidoa airport. A Somali intelligence source said the Ethiopian troops were in the town of Berdale, about 60km from Baidoa towards the border with Ethiopia.
The Islamists, who took the capital Mogadishu on June 5 and control a large swathe of the country after defeating secular US-backed warlords, have repeatedly said that Ethiopia has sent troops into Somalia.
"Ethiopia denies the allegation by Somalia sources that its troops have crossed the border," Zemedhun Tekle, the spokesman for the Ethiopian ministry of information, said.
"The allegation is the usual fabrication of the Islamists group aimed at hoodwinking the international community."
Meles Zenawi, Ethiopia's prime minister, said this week that the Islamists movement was dominated by members of a terrorist group and that Addis Ababa had beefed up its defences along the border to prevent any threat from the Islamists.
Largely secular Ethiopia has long been wary of the influence of Islam in the region.
The Somali member of parliament said that the Ethiopia troops had moved to the southern city of Baidoa to protect the interim government of President Abdullahi Yusuf.
"The Ethiopians want to protect the government but I think it is aimed at creating a problem between the government and the Islamic Courts," the MP, who declined to be named, said.