The speed of the government's advance has surprised observers |
"We are in Mogadishu," Prime Minister Mohamed Ali Gedi said. "We are co-ordinating our forces to take control of Mogadishu."
The transitional government's forces, backed by Ethiopian troops, reached the city's outskirts earlier on Thursday.
It is not clear whether the Ethiopians will remain outside Mogadishu.
Eyewitnesses say Somali troops were cheered by crowds, but some residents condemned the Ethiopian presence.
As the Union of Islamic Courts withdrew its fighters, Somalia's clan militias began reasserting their presence - raising fears of a return to the clan warfare which racked the city for years before the Islamists brought a measure of security.
The BBC's Mohammed Olad Hassan, in the city, says clan militiamen seized key buildings - like the airport and old presidential palace.
Residents in the north of the city have reported cars and mobile phones being stolen. Rising insecurity has forced most businesses to stop trading, our correspondent says.
Prime Minister Gedi is in the township of Afgoye, 20km (12 miles) west of Mogadishu, where he was to meet elders from the capital.
Transitional government spokesperson Abdirahman Dinari told the BBC that the majority of the forces poised to retake Mogadishu were Somali, not Ethiopian.
He added: "I would like to assure all the Somali people that we cannot accommodate any warlord who wants to destabilise the country.
"The government is committed to restore law and order and to implement institutions. We want to restore peace, law and order."
Meanwhile, in Ethiopia, Prime Minister Meles Zenawi said: "We will act on the basis of the advice of the transitional government and in consultation with the elders of Mogadishu but at the moment we are not in Mogadishu, we are just outside.
He added: "Our mission in Somalia is very very limited... we are not there to reconstruct Somalia economically, politically or otherwise. We are there to remove the threat of the Islamic Courts militia on Somalia and Ethiopia."
Defiant
Islamic fighters have fled towards the port city of Kismayo, their last remaining stronghold, 300 miles (500km) to the south.
A senior UIC official Omar Idris said the retreat was "not the end".
He told the BBC: "We know what happened in Iraq... I think this is very, very early to say that the Islamic Court forces were defeated."
Meanwhile, a UIC delegation has been in Nairobi, meeting Kenyan officials and Western diplomats.
At the weekend Ethiopia began a major offensive to support the weak government against the UIC - which previously held much of central and southern Somalia.
The conflict has killed hundreds of people. The head of the International Red Cross Somalia delegation said it was "extremely concerned about civilians caught up in the fighting".
The African Union has called for Ethiopian forces to leave Somalia.
However the UN Security Council has failed to agree on a statement calling for the withdrawal of all foreign forces.
Hardline elements
The UIC has its roots in the north of Mogadishu.
Courts administering Islamic law restored order in a city bedevilled by anarchy since the overthrow of former President Mohamed Siad Barre in 1991.
The UIC assumed control of the whole capital in June, driving warlords out and rapidly extending their influence to much of southern Somalia - with the exception of Baidoa, the seat of the transitional Somali government.
That body, set up in 2004 after talks between Somali factions, has been unable to meet in the capital because of opposition first from warlords, then from the UIC.
Almost all Somalis are Muslim and after years of lawlessness, many were happy to have some kind of law and order under the UIC.
But some are wary of the hardline elements among the UIC and do not want to be cut off from the rest of the world.
The UIC have staged public executions and floggings of people they have found guilty of crimes such as murder and selling drugs.
UIC leader Sheikh Hassan Dahir Aweys is accused by both Ethiopia and the US of having links to al-Qaeda - charges he denies.
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