Heavily armed militia fighters gathered near a key southern Somali town on Sunday a day after their allies were chased out by government troops, sending many residents fleeing in fear of an all-out attack.
One militia source said its troops were also planning an attack on the government's base in provincial Baidoa town.
The administration's seizure of Bur Hakaba represented a rare strike back against the newly powerful militias by the chaotic country's fragile Western-backed interim administration.
But it prompted hundreds of militias to converge on the nearby town of Lego, vowing to attack government forces they said were backed by Ethiopian troops if they did not withdraw.
"The Ethiopians have attacked Bur Hakaba and if they don't leave we will attack them," the militias' commander Sheikh Yusuf Mohamed Siad told Reuters, dressed in military fatigues.
"Ethiopia and its allies are against the peace we have brought to Somalia after 16 years of unrest," he said as militia battlewagons -- trucks mounted with heavy machine guns and anti-aircraft rockets -- rumbled through Lego.
"If these attacks continue we will ask other Islamic nations to help us," he said. The militias have declared war on Ethiopia, which has denounced them as terrorists.
The rise of the militias, who control much of the south after seizing the capital Mogadishu from US-backed warlords in June, threatens the government's attempts to reimpose central rule on a country in chaos since the 1991 ouster of a dictator.
POTENTIAL FLASHPOINT
One militia source told Reuters hundreds of fighters and dozens of battlewagons were en route to attack Baidoa itself.
"It will be a surprise attack since the government is waiting for our forces to strike Bur Hakaba," the source said.
Sunday's stand-off was the closest the two sides have come close to a full-scale confrontation, which diplomats fear could trigger a regional war in the Horn of Africa, already one of the world's poorest regions due to conflict and its harsh climate.
Somalia's interim government has said its forces will not leave Bur Hakaba and has repeatedly denied having Ethiopian help, even though residents say Addis Ababa has sent thousands of troops over the border to support the weak administration.
Strategic Bur Hakaba was always a potential flashpoint because it put the militias within 30 km (20 miles) of Baidoa.
militia forces were said to be within 15 km of Bur Hakaba, but there were no immediate reports of fresh fighting there.
Many residents of the town fled for surrounding villages fearing an all-out attack by the militias, and many in Lego said they were considering following suit.
"The whole town is worried and we don't know what direction we will flee when this war breaks out," said businessman Abdulkadir Nuur.
One resident of Bur Hakaba contacted by telephone said the town was quiet but tense, and that most shops had stayed shut.
"Some resident have fled towards the neighbouring villages for fear of stray missiles and bullets once fighting starts," Ali Iman told Reuters. "There is a very highly possibility of a clash. The troops are facing off."
Meanwhile further south-west, residents said militia troops clashed with militia loyal to the government's defence minister Barre Hiraale in a remote village 20 km north of Buale.
"Fighting is still going on," one resident said by telephone.