After a night of sporadic shelling, columns of Ethiopian tanks ploughed into northern Mogadishu, firing mortars and rockets on to suspected enemy positions, as machine-gun fire ricochetted across neighbourhoods.
A missile slammed through the roof of a nearby children's hospital packed with wounded civilians.
The shell that hit the children's hospital exploded in a ward housing between 20 and 30 wounded adults, said Wilhelm Huber, regional director for the SOS Children's Villages.
The children had been evacuated earlier because shells were hitting the compound, Huber said.
"What is happening now cannot go on," he said. "People are desperate. This is a tragic situation."
Residents said fighting had spread to the northern Ex-Control, Huriwa and Suuqahoola areas, threatening to engulf part of the city so far spared from weeks of artillery duels.
Civilians scrambled to escape stray bullets as buildings were set on fire and Mogadishu was transformed into a virtual "ghost town", residents said.
"The heaviest fighting is raging this morning. They are exchanging everything they have, from bullets from anti-aircraft shells, no one can put his head up," said Salah Doli, a resident of Jamhuriha area.
"Mortars have hit shops and buildings destroying them and setting others ablaze," he added.
Resident Ahmed Suad said shelling had destroyed buildings in the Tawfiq area, forcing civilians to flee.
"As I was fleeing my home, I saw several bodies lying in the streets," he said.
"This is some of the heaviest fighting ever in northern Mogadishu."
Locals, officials and human rights activists say nearly 300 people have been killed in a week of clashes.
Ethiopia on Thursday rejected allegations from human rights groups that its troops were targeting civilians, saying they had "taken every possible precaution to avoid or minimise civilian loss of life and civilian casualties".
"Ethiopian troops have never deliberately or knowingly targeted civilians, despite the current operational difficulties," the foreign ministry said in a statement.
Dozens of corpses remain rotting in the streets as the fighting has prevented aid workers from collecting them
The UN says nearly 340,000 people have left the city, which was once home to at least one million people, and it has warned of a looming catastrophe.
The Somali interim government has said there will be no let-up in the fighting until it wipes out the anti-government fighters.