Ethiopian troops and fighters from the pro-government militia Ahlu Sunna Wal Jamaa seized El Bur town, some 150 kilometres (90 miles) south of the Ethiopian border, after a brief firefight.
“Ethiopian troops have taken positions inside and outside the town, but most of the residents fled before they arrived,” said Abdukadir Sahal, a resident.
The loss of the town tightens the net on the hardline Shebab, who are facing attacks on multiple fronts by regional armies.
“There was brief exchange of gunfire on the outskirts of town but Al-Shebab fled… there are Ethiopian troops with armoured trucks, pulling heavy artillery weapons,” Sahal added.
“There was no fighting inside El Bur, but Al-Shebab fighters are not far away,” said Ahmednur Fodade, another resident.
Ethiopian soldiers in battle trucks began the advance on El Bur at the weekend, bolstering allied fighters from Ahlu Sunna at the central Somali town of Dhusamareb, before pushing on some 100 kilometres (60 miles) south.
El Bur is the fourth Shebab stronghold to be seized by the Ethiopian forces, who deployed into lawless Somalia in November, after Kenya also sent troops into southern Somalia to battle the ruthless militia.
The Shebab abandoned bases in the anarchic capital Mogadishu in August after their four-year bloody insurgency failed to topple the Western-backed Somali government, protected by a contingent of African Union troops.
The AU force is currently made up of some 10,000 soldiers from Burundi, Djibouti and Uganda, while Kenyan troops are due to integrate into the force.
However, while the Shebab have lost key towns recently, they still remain a serious threat, especially as they continue a bloody campaign of suicide and mortar attacks.
Shebab spokesman Ali Mohamud Rage, speaking earlier Monday before the fall of El Bur, said defiantly that the insurgents would not give up their fight.
“The mujahedeen fighters will not be deterred from implementing Islamic Sharia (law) in Somalia and to defeat the Christian invaders — we will continue fighting and the enemy will be defeated God willing,” Rage told reporters.
Two decades of lawlessness has seen the Horn of Africa nation carved up between multiple armed groups and extremist militia like the Shebab.
Somalia has had no effective central government since president Mohamed Siad Barre was toppled in 1991.
Ethiopia’s latest incursion is the second in five years. They toppled an Islamist movement after deploying in 2006, but they withdrew in 2009 after the group’s hardline fighters — the Shebab — mounted a bruising guerrilla war.