 Helicopter gunships have been used in a security crackdown |
"The helicopter looked like a ball of smoke and fire before crashing," Ruqiya Shafi Muhyadin told AP news agency as it crashed in an area near the airport.
Correspondents say the Ethiopian helicopter was hit by a missile as it bombed positions held by insurgents.
Dozens of people died in heavy fighting on Thursday, ending a six-day truce.
Prime Minister Mohammed Ali Ghedi insists the operation will continue, as it is aimed at restoring stability to the city, which has been wracked by conflict for 16 years.
Reconciliation
A Somali security officer at Mogadishu airport confirmed the crash to AFP news agency.
"Nobody came out," he said.
We barely slept last night. The sky was lit up by shelling all night 
Mogadishu resident
Fighting resumed on Friday as pro-government forces battled insurgents at close quarters near Mogadishu's main football stadium in the south of the city.
"A mortar has just fallen into the house next to me. We can hear crying and can see smoke," Faisal Jamah told Reuters news agency.
"We barely slept last night. The sky was lit up by shelling all night," he said.
"There are a lot of wounded, but there is no way to take them to the hospitals due to the fighting on the roads."
The BBC's Mohamed Olad Hassan in Mogadishu says hospitals in the city are overwhelmed with the wounded from Thursday's battles and dead bodies were scattered in the streets.
'Terrorists'
Mr Ghedi said the media had exaggerated the scale of the fighting and also denied that his government was unpopular in Mogadishu.
"There are some insurgents in the city who have links with international terrorists and are fighting against the government and the people of Somalia - we are attacking their positions," Mr Ghedi told the BBC Network Africa programme from Saudi Arabia, where he is attending the Arab League summit.
On Thursday, crowds of people dragged bodies in uniform through the streets - it is not clear whether they belonged to Ethiopian or Somali soldiers.
Ethiopian helicopter gunship and tanks were deployed against the insurgents.
Ethiopian Prime Minister Meles Zenawi told parliament that two-thirds of its troops have left Somalia and the remaining soldiers will leave in consultation with the African Union.
Ethiopian troops helped install the interim government last December, replacing the Islamists who had governed the city for six months.
Some 1,700 Ugandan troops are in Mogadishu as the advance party of an 8,000 strong AU force.
Mr Ghedi also said that plans for the national reconciliation conference in April were under way and they have invited moderate Islamic scholars for the conference.
"Those who denounce violence and recognise the transitional federal charter for Somalia are welcome for the conference," he said.
Western governments have called on President Abdullahi Yusuf's government to involve moderate leaders of the ousted Union of Islamic Courts in the national reconciliation conference that will be held in Mogadishu.
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