The warning was made in an urgent memo to Eric van der Linden, the EU ambassador based in Nairobi, Kenya.
Mahdi Said, a resident of Lafole, south of the capital, said he saw at least four Ethiopian military vehicles heading to Mogadishu, also from the direction of Baidoa.
"There were some troops on board, but I do not know how many they were," he said.
The troops earlier flew into Baidoa, 250 kilometres (150 miles) northwest of Mogadishu, according to locals there, who reported seeing two large planes and at least nine military vehicles carrying dozens of soldiers.
Ethiopian information ministry spokesman Zemedkum Tekle denied a new deployment and insisted Addis Ababa had pulled out two-thirds of its forces from Somalia.
African Union force 'may have committed war crimes'
A senior European Union security official has warned the head of the EU delegation for Somalia and Kenya that military forces may have committed war crimes in Somalia.
The official warned that donor countries could be considered complicit in any possible crimes if they do nothing to stop them.
The author, whose name was blanked out on the copy obtained by The Associated Press, went on to detail the exact statutes that they believed may have been violated.
The official's email said: "I need to advise you that there are strong grounds to believe that the Ethiopian government and the transitional federal government of Somalia and the African Union (peacekeeping) Force Commander, possibly also including the African Union Head of Mission and other African Union officials have through commission or omission violated the Rome Statute of the International Criminal Court.
"In regard to the above mentioned potential violations of international law there arise urgent questions of responsibility and potential complicity in the commission of war crimes by the European Commission and its partners."
"The situation is Somalia has gone from bad to worse after the intervention of Ethiopian troops"
Abed, Kumasi, Ghana
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Solomon Abebe, spokesman for the Ethiopian ministry of foreign affairs, called the allegations a "fabrication".
Abebe said: "The international community, everybody knows that this is false."
EU officials were not immediately available for comment because Friday was a public holiday in Kenya. Somali officials were unreachable.
European diplomats said they were concerned about the information.
Jens Orlander, the Swedish special envoy for Somalia based in Nairobi, said: "We are looking at this from a legal point of view at the ministry of foreign affairs in Stockholm."