Witnesses in Berdale, Somaila, some 50 kilometres (30 miles) west of Baidoa, said the Al-Qaeda allied Shebab withdrew from there late Tuesday, with Ethiopian and Somali forces now moving in to take control.
"Berdale is completely empty this morning, Al-Shebab fighters fled the area and the Ethiopian tanks are very close now, they are in the outskirts," said Suleiman Mohamed, a resident in Berdale.
"I think there will not be fighting here, as we cannot see any resisting power now."
Ethiopian troops, who moved into southern and western Somalia in November, began a major push Tuesday towards the southern town of Baidoa, which hosted the transitional parliament before Islamist rebels seized the town in 2009.
Somali fighters battling the Shebab said they had taken Berdale.
"Our forces, and the Ethiopian soldiers assisting them, took control of Berdale—will keep advancing until we seize Baidoa very soon," said Mohamed Ibrahim Habsade, a lawmaker and military commander with the advancing troops.
"The violent extremists did not fight but just ran away, and we will keep chasing them to eliminate their existence."
The insurgents have said they have been reinforcing their positions in anticipation of the advance, but Habsade said he was confident the troops could wrest Baidoa from the rebels.
"The attack will not spare a single area under the rule of the terrorists, we will remove them from each and every village and town they control," he added.
Witnesses in Baidoa said people were fleeing the town towards the rebel-held Afgoye corridor, close to the government-held Somali capital Mogadishu.
"Many people, most of them Al-Shebab families and supporters, are fleeing Baidoa this morning, they are heading towards the Afgoye corridor," said Hussein Ali, a resident.
"The town is tense because of the approaching forces led by Ethiopia."