Ali Mohamed Gedi, the Somali prime minister, confirmed that the last stronghold of Islamic Courts' fighters was now under government control. The Associated Press news agency also reported him as giving all Somalis three days to hand in any weapons.
The besieged Islamic Courts had rallied several thousand fighters at Jilib, just north of Kismayu on the shores of the Indian Ocean, after a retreat south 300km from the capital, Mogadishu.
Ethiopian troops fighting to support the interim government had rained down mortars and rockets on the Islamic Courts men dug in near Kismayu on Sunday to start a battle against them.
Fearing a blood bath, residents ran for their lives, carrying blankets, food and water on their heads.
Jilib lies about 45km north of Kismayu, where Islamic Courts leaders Sheikh Hassan Dahir Aweys and Sheikh Sharif Ahmed are based.
The joint Ethiopian-Somali government force marched into Kismayu on Monday, but troops were slowed by having to clear mines left by Islamic Courts fighters on the road in.
Some residents took advantage of the temporary power vacuum to loot the Islamic Courts' arsenal in Kismayu.
A witness saw dozens grabbing machine guns and heavy weapons to carry away.
"I came to see if I can get anything to sell," resident Mohamed Amin said.
The intervention of Ethiopia has reversed the fortunes of the provisional government and the UIC, which just two weeks ago controlled the capital and appeared on the verge of routing a weak interim government stranded in a provincial town.
Now the interim government has control of Mogadishu and the Islamic Courts - without tanks or planes - are fighting with their backs to the sea and Somalia's southern border with Kenya.
Osman Mohamed, an aid worker, said: "Two-thirds of the population in Jilib have fled the town ... nearly 4,700 have fled."
|Ethiopia has at least|
4,000 troops in Somalia [AP]
The Islamic Courts have built trenches with bulldozers and have more than 60 "technicals" - pickup trucks mounted with heavy weapons - supporting about 3,000 fighters, witnesses say.
Kenya has reinforced its northern border and US forces are also said to be in the region, including the sea, to prevent foreign fighters aligned with the Islamic Courts from escaping.
Ethiopia says it has 4,000 troops in Somalia, though many believe that number could be far higher.
Somalia's interim government has not given troop numbers, but is thought by experts to have several thousand.