Fighting between insurgents and the interim government backed by Ethiopian forces broke out in the Somali capital more than a year ago, plunging the city into bloodshed in which more than 6,500 have been killed and 600,000 have fled their homes.

Residents said Ethiopian army units based in north Mogadishu had marched to the sprawling Bakara market on Thursday, where insurgents confronted them, prompting fierce gun battles and exchanges of mortar rounds.

"I saw two dead Ethiopian soldiers lying in the middle of the road. There were also two Somalis wounded in the crossfire," witness Abdi Ahmed told Reuters by phone.

The Somali government and Ethiopia believe Bakara -- the city's biggest market -- is a hotbed of insurgents, and have routinely attacked it while carrying out sweeps for insurgents.

Hassan Abdikafi, a kiosk owner in Bakara, said Ethiopian tanks had fired into the crowded market.

"Four dead people are lying inside the market. I can also see nine wounded people. The Ethiopian forces have occupied Blacksea area and they are firing their tank guns towards the market," Abdikafi said.

Mortar rounds killed six people and wounded four, witnesses said. "Two mortar rounds hit two homes next to each other. The first one killed five people from the same family and the other one killed one person, wounding at least four others," resident Sahra Hashi told Reuters.

Officials at Madina Hospital said one woman died in the operating theatre, and 75 people -- including 15 children -- had been admitted with serious injuries.

The interim government took over Mogadishu in the last days of 2006 with the help of Ethiopian armour and air power, unseating an Islamist movement that had challenged its authority with a six-month reign over most of southern Somalia.

The government has moved back into Mogadishu but has never fully controlled the city and fighting erupts regularly, often when insurgent attacks prompt Ethiopian and Somali troops to assault neighbourhoods regarded as pro-Islamist.