Hundreds of civilians have fled the fighting.
 
Sheikh Mohamed Ibrahim Bilal, an Islamic Courts commander, said: "We have killed a lot and won the war, we shall continue defeating the enemy of Allah."
 
Mohammed Sheikh Ibrahim Suley, another senior leader, said seven fighters of the group have been killed and more than 20 others wounded so far in the ongoing clashes with Ethiopian forces in southern Baidoa.
 
At a news conference in Mogadishu, Suley also said that more than 70 members of the Ethiopian forces had been killed and wounded.
 
Discouraging signs
 
Jama Nur Ahmed, Al Jazeera's correspondent in Mogadishu, said that despite the agreement in principle between the Islamic Courts and the Somali transitional government to resume talks, the indications on the ground were discouraging.
 
Observers see the agreement on a resumption of talks as just a diplomatic formality.
 
The Islamic Courts insist that Ethiopian forces should leave Somali soil as a first step to restart dialogue.
 
Under attack
 
The Ethiopian forces attacked the Islamic Courts fighters in Edale area, Omar Iman, deputy head of the Islamic Courts' Shura Council, told Al Jazeera on Thursday.
 
Fierce clashes erupted and it ended with the defeat of the Ethiopian forces, he said.
 
The Islamic Courts has controlled Edale city in southern Baidoa, Al Jazeera's Jama Nur Ahmed said.
 
"More than 200 Ethiopian forces have been killed during the clashes," Iman said.
 
Around 12 to 15 Islamic Courts' fighters were killed and more than 20 others wounded in this area, he said.
 
With regard to the resumption of talks, Iman said "the Ethiopian forces do not want Somalis to agree".
 
"We [the Islamic Courts] are always ready to hold talks but first of all the Ethiopian forces should be out of Somalia. Just after that, without any other conditions, we will turn to negotiations with the interim government."
 
Peace talks
 
On Wednesday, both Somalia's transitional government and the Islamic Courts had agreed to return to peace talks.
 
At the time Michel said the Islamic Courts had "accepted to engage in political dialogue with the transitional government."
 
Somali government officials also said they would attend talks in Sudan and leaders of the Islamic Courts also said they were willing to attend without conditions.
 
But no date was given for the talks.
 
Earlier discussions collapsed in November when the Islamic Courts refused to negotiate until Ethiopian troops which have backed the governments forces, pull out of Somalia.
 
Earlier fighting
 
On Wednesday, Islamic Courts fighters clashed with artillery, rocket-propelled grenades and anti-aircraft guns as Michel was meeting with Ali Mohamed Gedi, the Somali prime minister, and Abdullahi Yusuf, the president.
 
Government troops were involved in
further clashes on Thursday [EPA]
The fighting took place just a day after an ultimatum by the Islamic Courts for Ethiopian troops backing the transitional government to leave or face a major attack.
 
Al Jazeera said the Islamic Courts had denied reports from Baidoa claiming hundreds of its fighters were killed in heavy fighting there.
 
Sheik Hassan Dahir Aweys, the head of the Islamic Courts' Shura Council, played down the fighting that had erupted on Wednesday.
 
He said: "This was not full scale war. The fighting was a small incident between the Islamic courts and the Ethiopians, not between us and the government."