"There will be no negotiations as long as Ethiopian troops are occupying parts of Somalia. They have to be withdrawn immediately and unconditionally," Sheikh Hassan Dahir Aweys said in the Galgudud region of central Somalia.
In June, the government and Islamists signed a deal in Khartoum agreeing to recognise each other and cease hostilities.
Since then the government has accused the Islamists of violating the deal and the latter have reacted angrily to Ethiopia's military incursion.
Aweys, who has been labelled a "terrorist" by the United States for suspected links to Al-Qaeda, accused the Ethiopian government of inventing excuses to invade Somalia.
Last week, Ethiopia troops moved into Somalia, ostensibly to protect the government.
The lame duck administration, based in the town of Baidoa for fearof violence in the capital Mogadishu, said it feared the Islamists would try to seize the provincial outpost and impose Islamic Sharia law across the country.
"Let me be clear, speak louder and truthfully declare that we have no intention of attacking Baidoa," Aweys stressed.
Despite numerous eyewitness reports of uniformed Ethiopian soldiers being seen in Baidoa, the Somali government and Addis Ababa have denied their presence there or anywhere else in Somalia.
"If this government based in Baidoa is for Somalis, there is no reason to say that Ethiopia is protecting it from the people of Somalia," said Aweys.
Peace talks
Meanwhile, the Somali government confirmed it would send a delegation to meet the Islamists at the planned peace talks in Sudan.
The announcement came after the UN special envoy for Somalia, Francois Fall, gave President Abdullahi Yusuf Ahmed a message from the UN Security Council asking him to send a team to the talks.
"We will go to Khartoum without any preconditions," the president's chief of staff, Abdirizak Adam, said in Baidoa after the meeting between Mr Fall and Yusuf.
Mr Fall praised the Islamists for restoring order in Mogadhisu after evicting US-backed warlords from the capital, but he said dialogue was the only way to achieve lasting peace.
Somalia has been without a functioning central administration since dictator Mohamed Siad Barre was toppled in 1991 and the country descended into lawlessness.