At least 23 people were killed when Somali insurgents attacked Ethiopian troops on Saturday near the two countries' joint border, witnesses said.
Residents in Yurkud village told The Associated Press that the battle lasted several hours.
Mohamed Hussein said he saw at least 17 dead fighters from the al-Qaida-linked al-Shabab insurgency lying on the ground after the battle stopped.
"We have never seen fighting as tough as that," he said by phone.
Resident Ali Barre said he saw six Ethiopian soldiers in uniform who had been killed and were being carried past his house. The insurgents had been forced to retreat, he said.
"We have killed 73 Ethiopian soldiers and recovered 20 guns," said al-Shabab spokesman Sheik Abdiaziz Abu-Musab. He said five al-Shabab fighters had been killed. The militants frequently exaggerate their victories and downplay their casualties.
The Ethiopian military never releases information on casualties.
Ethiopian troops moved into the border regions of Somalia earlier this year as part of a three-pronged attack on the insurgency. Kenyan troops crossed into the south, and African Union troops backing the weak U.N.-backed government have wrested back control of the capital of Mogadishu.
Although the government has international support, it is unclear if it is able to tackle corruption and provide services or security to the war-weary population.
Somalia has been wracked by civil war for more than 20 years, ever since clan warlords overthrew a socialist dictator in 1991.