The Somali government said its Ethiopia-backed forces will enter into the capital Mogadishu in the "coming hours."
"We will enter into the city and capture it in the coming hours because the Islamists have disappeared into thin air," government spokesman Abdirahaman Dinari told AFP.
The announcement came as a leader of Somalia's Islamist movement, Sheikh Sharif Sheikh Ahmed, told Al-Jazeera television Thursday that Islamist forces and their leaders have withdrawn from the capital Mogadishu, following an offensive by Ethiopian-backed government troops.
"We have withdrawn our forces (from Mogadishu) and there are no Islamic Courts forces (there). It is the Somali people who are resisting," Ahmed said.
"We did not leave the capital to chaos. We left it to avert heavy bombing because Ethiopian forces are practicing genocide against the Somali people," said Ahmed, who heads the executive committee of the Supreme Islamic Council of Somalia (SICS).
"We have pulled out all leaderships and elements of the (Islamic) Courts," he told the Qatar-based Arab satellite television.
But Ahmed vowed that the Islamist movement would eject Ethiopian troops from Somalia.
"God willing, we will drive out these forces who entered Somalia to destroy what was achieved in the past few months. We have a plan to drive these forces out," he said.
Earlier the UN Security Council failed to reach consensus on a statement calling for the immediate withdrawal of all foreign forces from Somalia and an end to military operations.
"We could not reach consensus" on the non-binding statement, said Mutlaq al-Qahtani, a UN delegate from Qatar, which chairs the 15-member council and drafted the text.
It was the second day in a row that the 15 members failed to reach common ground and they finally decided to give up their attempt as it became clear there was no hope of a consensus.
Meanwhile the UN braced for tens of thousands of refugees flooding into neighbouring Kenya and Ethiopia.
On Wednesday pro-government forces seized Jowhar, about 90 kilometres (55 miles) north of Mogadishu and rolled south, with the Islamists carrying out what they described as a "tactical retreat" under air attacks.
In Kenya, whose government helped shape Somalia's interim regime in 2004, diplomats said the Islamists had agreed to attend talks in Nairobi on Thursday to contain the situation.
As concern mounted worldwide of an impending bloodbath and massive displacement of civilians, the Organization of the Islamic Conference (OIC) urged parties to spare the city due to the potential for "enormous human losses".
"To carry the battle to the capital is likely to force thousands of civilians... to flee and exacerbate the humane catastrophe," said OIC Secretary General Ekmeleddin Ihsanoglu.
The African Union and the Arab League urged Ethiopia to pull out and for the rivals to observe a truce, while the OIC warned fighting could worsen "the humanitarian tragedy already unfolding".
But Somali Information Minister Jamah said: "The Ethiopians have a limited objective. They came at the invitation of a legitimate government to rout out these extremist elements from Somalia. It is limited in scope and limited in time.
"They will go back very soon, almost 80 percent of our mission is completed ... There were common interests, they (the Islamists) were threatening us and also threatening Ethiopia."
In June, the Islamists seized Mogadishu and much of Somalia, leaving the US-backed transitional government only in control of the town of Baidoa.
But as the Islamists advanced on Baidoa, Ethiopia moved to shore up the government. Heavy fighting then erupted last week after the Islamists made good on a vow to launch attacks if Ethiopian troops failed to pull out within a week.
The office of the UN High Commissioner for Refugees (UNHCR) meanwhile warned that as many as 50,000 refugees could pour into neighbouring countries.
"Although no large-scale refugee movements from Somalia have yet been recorded in neighbouring countries, UNHCR is immediately positioning relief items in the region for up to 50,000 people..." it said.
UNHCR said from its Geneva headquarters it was mobilising staff and resources.
"In addition to the immediate pre-positioning of relief items, UNHCR will also increase its existing stockpiles in the region by purchasing enough supplies for a further 100,000 people, refugees as well as internally displaced people," a statement said.
Eritrean President Issaias Afeworki, meanwhile, blamed arch-rival Ethiopia for the escalating conflict.
Issaias said the "current situation in Somalia is the result of the intervention of foreign forces, particularly Ethiopia," according to a statement published in the country's information ministry website.
Analysts have accused the two Horn of Africa nations, still at odds over the unresolved border row that sparked their 1998-2000 war, of fighting a proxy war in Somalia.