Tigrayan rebels say they have captured the strategic northern Ethiopian city of Kombolcha.
But the government has denied the claim, saying federal forces are mounting a fierce battle for Kombolcha and the city of Dessie.
US Secretary of State Antony Blinken said he was alarmed by reports the rebel forces had taken over the two key locations.
If confirmed, the capture of Kombolcha on Sunday, a day after the rebels claimed control of Dessie, would reflect a rapid advance by the Tigray People's Liberation Front (TPLF) in the nearly year-long war.
“Firmly in control of #Kombolcha,” TPLF spokesman Getachew Reda said on Twitter, marking a major step in the rebels' offensive since they retook most of Tigray from federal forces in June and expanded into neighbouring regions.
Government spokesman Legesse Tulu sad: “There is currently fierce fighting in Dessie and Kombolcha.”
Communications have been cut for much of northern Ethiopia and access for journalists is restricted, making battlefield claims difficult to independently verify.
The fighting in Kombolcha, south of Dessie, has fuelled speculation that the TPLF is heading closer to the Ethiopian capital Addis Ababa.
Mr Getachew said the rebels, which dominated national politics for three decades until 2018, had no “other motive than breaking the deadly siege” on Tigray, which is in the midst of a severe humanitarian crisis.
In Kombolcha, frightened residents said they had spent the day holed up in their homes as gunfire reverberated in the streets, with TPLF fighters clashing with Ethiopian soldiers and local militias.
Semira, 36, one of the few people to step out on Sunday, said she spotted the rebels marching down the street after she finished praying at a local mosque.
“I saw some soldiers … going out of the city with a few lorries,” she said.
A shopkeeper who gave his name as Hamdiu said he also saw Ethiopian troops leaving on lorries.
“The city is scary quiet now … all the people are indoors,” he said. The shopkeeper said he could see TPLF fighters on the streets through his window.
In a Facebook post, Prime Minister Abiy Ahmed urged Ethiopians to use “any type of weapons … to block the destructive TPLF, to overturn it and bury it".
“Dying for Ethiopia is a duty [for] all of us,” he said, echoing an earlier call by the Amhara regional government asking residents to protect their neighbourhoods.
The administration of Amhara, where Kombolcha and Dessie are located, also issued a decree on Sunday ordering all government institutions to suspend their regular services and divert their budgets and their attention to “the survival campaign".