The United States called on Eritrea on Thursday to abide by a UN Security Council order to withdraw its forces from a demilitarised buffer zone along the border with Ethiopia.
Washington said Eriteria's incursion undermined regional security.
Eritrea on Monday sent troops and tanks into the western portion of the buffer zone, which is monitored by UN peacekeepers, prompting rebukes and calls for their withdrawal from UN chief Kofi Annan and the UN Security Council.
"The United States calls on Eritrea to respond to the October 17 statement issued by the United Nations Security Council by immediately withdrawing the tanks, troops and accompanying artillery that breached the Temporary Security Zone on October 16, 2006," Tom Casey, deputy US State Department spokesman, said in a statement.
He said that the incursion violated Eritrea's commitments in the so-called Agreement on Cessation of Hostilities forged with its neighbour six years ago and "is an action that further undermines regional stability."
Eritrea, which says the soldiers are in the buffer zone to harvest crops and work on development projects, has refused to pull the troops back, saying the area is sovereign Eritrean territory.
It has repeatedly warned that a resumption of the 1998-2000 frontier war is possible because Ethiopia has rejected a binding border demarcation from a boundary panel set up under the peace agreement.
It has savagely criticised the United Nations for failing to press Ethiopia to accept the ruling, which awarded the flashpoint border town of Badme to Eritrea.
"The United States urges both Eritrea and Ethiopia to show maximum restraint, to refrain from the threat or use of force against each other and to avoid any action that may escalate tensions between the two countries," Casey said.
Washington also called on both parties to comply with their commitments in the Algiers peace deal of 2000 and to address their differences peacefully and in accord with these commitments, he said.