The new leader of the Islamist group that controls much of southern Somalia is a threat to Ethiopia, says Prime Minister Meles Zenawi.
Sheikh Hassan Dahir Aweys was head of al-Itihaad al-Islamiya, a group accused of having links to al-Qaeda.
Ethiopia helped Somalia's now interim president, Abdullahi Yusuf, defeat al-Itihaad in the 1990s.
The United States has said it will not deal with Mr Aweys, because of "links to terrorism", a charge he denies.
Mr Meles says security along its border has been increased in case of "the resurgence of Jihadists in Mogadishu".
Last week, Mr Awey's Somali Supreme Islamic Courts Council and the interim government, which is largely toothless and based north of the capital in Baidoa, agreed not to fight each other.
The recent advances of the Islamists have renewed fears of major conflict in Somalia, which has not had an effective national government for 15 years.
Security
Mr Meles accused Ethiopia's long-time rival Eritrea of backing Mogadishu's Islamic courts, whose militia recently seized power of the capital from an alliance of warlords. Eritrea denies these accusations
And Mr Meles denies accusations that Ethiopia had sent troops into Somalia.
"We have beefed up our defences all along the border to prevent any threat to our security that might emanate from the resurgent Jihadists in Mogadishu," he said.
On Monday, Mr Aweys said he would only back a government based on Islamic law, but the BBC's Hassan Barise says his colleagues have offered assurances they do not want a Taleban-style state.
President Yusuf strongly opposes political Islam.
"Al-Itihaad has been involved in terrorist outrages in Addis Ababa," Reuters news agency quoted the Ethiopian leader as saying in reference to mysterious blasts in the last year in the Ethiopian capital.
"It is a terrorist organisation which has no qualms in planting bombs in hotels and so it would be absolutely prudent for us to take proper precautionary measures," he added.
'Troubled'
Meanwhile, the African Union is to ask the United Nations Security Council to partially lift its arms embargo on Somalia to allow for an African peacekeeping mission to go there.
"Whilst we support the arms embargo, the peace support mission should not be affected by this embargo," South Africa's foreign minister, Nkosazana Dlamini Zuma, said after a meeting of the AU's Peace and Security Council.
"The transitional government must be able to build its institutions like the police and so on," she said.
Somalia's president is in favour of the deployment of peacekeepers, but the Islamists strongly oppose the move.
The US has said it is willing to work with other leaders allied to Mr Aweys, but it fears that a Somalia run by Islamists could be used by international Islamic fighters.
US State Department spokesman Sean McCormack said the US would be troubled if Mr Aweys' promotion was an indication of the direction the Somali Supreme Islamic Courts Council was heading in.
But Mr Aweys told the AFP news agency he had never killed anybody.
"I am not a terrorist. But if strictly following my religion and love for Islam makes me a terrorist, then I will accept the designation."
The US is widely believed to have backed the defeated Mogadishu warlords, as part of its war on terror.
It has neither confirmed nor denied the reports but says it will support those working to prevent "terrorists" from setting up in Somalia.
