"We have concluded that it's inappropriate for Ethiopia to maintain its troops in Somalia," Wahide Bellay, a spokesman for the Ethiopian foreign ministry, said.
"We have done our job and we are proud of it, but the expectations that we had from the international community were never fulfiled. But that said, we will withdraw in a responsible manner," he said.
Shaky situation
The Somali government called in troops from neighbouring Ethiopia in December 2006 to oust the Islamic Courts Union (ICU), after fighters from the group had conquered most of the country and were imposing a strict form of Sharia law.
Ethiopian troops, now estimated at around 3,000, were meant to back the embattled transitional government but despite their support, little has been achieved in regaining control of the country and an Ethiopian withdrawal is likely to worsen the situation.
Jean Ping, African Union commission chairman, said that a hasty Ethiopian withdrawal from Somalia would have dire consequences.
"It's a possible scenario and a disaster scenario," he said, explaining that the 3,600 peacekeepers deployed by the African Union (AU) have threatened to pull out as well if a smooth transition is not guaranteed.
"If the transitional government continues to quarrel, if those we came here to help can't agree and the Ethiopians pull out lock, stock and barrel... and African troops too decide to leave, then we have the worst possible scenario."
UN peacekeepers
Ahmedou Ould Abdallah, the UN's top envoy for Somalia, said that the international community should hold urgent talks with Ethiopia over the date of its withdrawal.
In 2007, the AU started deploying peacekeepers in Mogadishu but their troops have failed to curb the daily fighting, which has killed thousands of civilians this year alone.
Abdullahi Yusuf, Somalia's president, has asked for a UN peacekeeping force
to replace the small AU force.
On Friday, the Ethiopian foreign ministry urged the international community to send peacekeepers, but said Ethiopia would not wait any longer for such a force to be assembled.
The UN Security Council has said that if Somalia can improve security and political reconciliation, it would consider sending UN peacekeepers to replace AU forces.
Fighting in Somalia has killed 10,000 civilians since early 2007, driven more than a million from their homes and left more than 3 million Somalis in need of emergency food aid.