African Union (AU) peacekeepers and Somali police battled Islamist rebels for a second day on Wednesday, taking the death toll in the worst fighting for weeks to 81, witnesses and a rights group said.

The local Elman Peace and Human Rights group said 48 civilians had been killed and 90 wounded since early Tuesday. Witnesses said at least 15 Islamist fighters and six policemen were also killed in exchanges of gunfire and mortar bombs that have rocked the coastal capital for two days.

The latest violence flared just days after new President Sheikh Sharif Ahmed returned to the coastal city to form an inclusive unity government.

Al Shabaab Islamists, who have been battling his administration and a 3,500-strong AU peace mission based in the capital, also seized the southcentral town of Hudur from pro-government militias after a short battle on Wednesday.

"Al Shabaab fighters are now patrolling the town and the other group fled," local elder Hussein Abdi Isak told Reuters by phone from Hudur.

He said at least 18 combatants had died.

More than 16,000 civilians have been killed in the two-year-old insurgency, one million people have been driven from their homes, more than a third of the population depend on aid, and large parts of Mogadishu lie empty and destroyed.

Al Shabaab gained support as one of many insurgent groups waging war against Ethiopian troops propping up the country's previous government.

Regional diplomats hope the inclusion of moderate Islamists in the new administration may marginalise hardliners like the group.

But analysts differ over al Shabaab's strength.

Some say it could overrun the government, while others say it has only a few thousand fighters and has used the media to project a more powerful image, despite waning support among traditionally moderate Somali Muslims.

Reuters