"I saw 37 dead civilians near Arbiska, where the Ethiopian forces indiscriminately opened fire on two civilian buses," said Ahmed Husein Mohamed, a local elder who witnessed the killings.
Scenes of carnage
All the witnesses and residents gave death tolls of at least 30. They said all the victims appeared to be civilians and described scenes of carnage.
"It's a scene of complete destruction of human life - everyone is dazed," Mohamed said.
Another witness, Amino Hasan Adan, said: "They killed everyone on the buses, there was blood everywhere. It was unbearable to look at the scene."
She said she counted the bodies of 29 men, seven women and a child.
It was not immmediately clear what prompted the Ethiopian troops - in Somalia to prop up a fragile interim government under attack from fighters loyal to the Union of Islamic Courts opposition - to open fire.
The Ethiopians had come under attack three times earlier in the day, once by a roadside bomb and twice by gunfire.
Adan Moalim Yahye, another witness, said: "The Ethiopian forces opened fire on the two civilian buses and they killed many. I personally counted 15 just in one spot, but I could not reach some of the other places, where people are saying many others were killed."
Hassan Sheikh Ali, a medical doctor at the nearby Afgoye hospital, said 10 wounded people were brought in.
"Most of them are in shock, but they explained that many civilians were indiscriminately killed," he told AFP news agency.
The Ethiopian military in Somalia rarely comments on such incidents and it was not immediately possible to confirm the toll from Somali security sources.
The Ethiopian army rolled into Somalia in late 2006 at the request of the embattled transitional government.
They ousted the fighters controlling large parts of the Horn of Africa country.
The fighters have since reverted to guerrilla warfare and have been targeting Somali government forces, Ethiopian troops and African Union peacekeepers almost daily.
Civilians have borne the brunt of the conflict. According to international rights groups and aid organisations, at least 6,000 people have died over the past year.
The bloodshed in Arbiska came only two days after a similar incident south of Mogadishu, on the road between the capital and the town of Wanlaweyn.
According to witnesses, Ethiopian forces mistook a civilian minibus travelling at night as hostile and opened fire, killing five civilians.
In April, Amnesty International, a London-based rights watchdog, accused Ethiopian forces of committing grave abuses against civilians after a raid on a Mogadishu mosque the previous month. Addis Ababa denied the charges.