"That information is false. Our troops have not returned to Somalia ... They are on our side of the border," he said.
On Monday Hizbul Islam, a Somali opposition group fighting government forces and African Union peacekeepers, closed in on Mogadishu, Somalia's capital, after seizing Mahaday, a strategically important town north of the capital.
This came a day after al-Shabab, another anti-government group, captured the nearby town of Jowhar.
Government losing ground
The Somali government has been losing ground in recent weeks and now controls little more than the centre of Mogadishu, with the support of African Union (AU)troops.
Hizbul Islam has pledged to fight AU troops until they leave the country and topple Sharif Ahmed, the Somali president.
There have been sporadic reports of Ethiopian troops crossing the border since they pulled out of Somalia at the start of 2009 as part of a peace deal.
Ethiopian troops originally entered the country in 2006 to restore the UN-backed government to power in Mogadishu, which Islamist fighters had seized along with much of southern Somalia.
Somalis flee fighting
The clashes between government forces and rebel fighters have forced thousands of Somalis to flee west across the border into Kenya.
A charity said on Monday that more than 270,000 refugees in Kenya were facing alarming shortages of food, water and shelter in overcrowded camps.
Somalia has not had an effective government since 1991, when Mohamed Siad Barre was overthrown by armed groups who then turned on each other.