Fearful residents of the town, about 400 kilometres south-west of Mogadishu, have been fleeing across the border to Kenya in case fighting breaks out.
The country's defence minister, Colonel Barre "Hirale" Aden Shire, had been a leading member of the Juba Valley Alliance that had been ruling Kismayo and was among those who fled.
Mr Hirale's deputy, Yusuf Mire Mohamud, said: "The Juba Valley
Alliance has collapsed today."
Members of the Islamic group, which the US accuses of harbouring al-Qaeda terrorists, were not immediately available for comment.
The militia — which controls the capital, Mogadishu, along with much of southern Somalia — have been in Kismayo for several days, in direct challenge to the alliance.
Lawless nation
Somalia has not had an effective national government since 1991, when warlords overthrew dictator Mohamed Siad Barre and then turned on one another, throwing the country into anarchy.
An official government was formed in 2004 with UN help in hopes of restoring order after years of lawlessness. But the Islamic movement seized Mogadishu in June and now controls much of the country's south.
Last month, the Islamists re-opened the main Somali seaport in Mogadishu for the first time 11 years. The port and the area it surrounds had been controlled by rival warlords whose militias prevented its use.
The official government now controls just one town, Baidoa, 250 kilometres from the capital.
US terror claims
The US has accused the Islamic group of sheltering suspects in the 1998 bombings of US embassies in Kenya and Tanzania. Al-Qaeda chief Osama bin Laden has portrayed Somalia as a battleground in his war on the US.
The group's strict and often severe interpretation of Islam raises memories of Afghanistan's Taliban, which was ousted by a US-led campaign for harbouring bin Laden and al-Qaeda fighters.
However many residents credit the courts with bringing a semblance of order.