Dini said other Somali soldiers collected the bodies once the fighting died down.
Maryan Daud, another resident, said her house was heavily damaged by artillery fire from soldiers guarding the palace, and that her two stepbrothers had been killed.
Dahir Dhere, the director of Medina Hospital, said 13 wounded people were admitted to the hospital.
Government officials were not immediately available for comment.
Peace talks
At least 32 people have been killed in two days of attacks in Mogadishu and two rural areas of Somalia.
But Ahmed Ould Abdallah, the UN envoy, expressed optimism over the UN-sponsored peace talks due to begin in Djibouti on Saturday, despite two failed peace conferences in 2007.
Seven members of the interim government of Nur Hassan Hussein, the Somali prime minister, will sit down with seven opposition figures.
The closed-doors discussions are expected to last for up to a week.
Revenge attacks
The latest fighting in Somalia comes after fighters loyal to the Union of Islamic Courts movement vowed to avenge the death of Hashi Aden Ayro, the commander of the al-Shabab group, killed last week along with 24 other people when US fighter jets bombed his home.
The al-Shabab commander had been leading fighters in Somalia and was also accused of being a local al-Qaeda leader.
In an attack on Thursday, fighters opposed to the transitional government briefly seized the police headquarters in Mogadishu in an attack the left 11 people dead, police sources said.
On Wednesday, fighters attacked Ethiopian military convoys near two villages in central Somalia, and the soldiers in both cases responded by opening fire on civilians, killing a total of at least 17 villagers, witnesses said.
It was not known how many Ethiopian soldiers died in the attacks, and the witness accounts were not verified by officials.
Human rights groups have in the past said Ethiopian troops - which entered Somalia in December 2006 at the invitation of the government to defeat the Union of Islamic Courts - have targeted civilians.