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Somalia's increasingly powerful Islamists have expanded their territorial control by seizing a strategic coastal town, jeopardizing hopes of averting an all-out war in the Horn of African nation.

Militia loyal to the Supreme Council of Islamic Courts (SCIC) captured the northern town of Hobyo, about 500 km from the capital Mogadishu on Tuesday without firing a bullet.

"There was no fighting and the people here welcomed us." Mohamed Mohamud Jimale Agawiene, a spokesman for the group in central Somalia reportedly said on Wednesday.

Sources including local media reports said Hobyo was now in the hands of the Islamists, who seized Mogadishu in June from warlords after months of fierce battles and now control most of southern and central Somalia .

The latest takeover came as peace talks in Khartoum, Sudan, between the Islamic group and the government is at a standstill, raising fears that attempts to broker a peace deal between the two rival groups were on the brink of collapse.

The SCIC delegation has insisted that Ethiopian troops be withdrawn from Somali territory before they sit down to talks with representatives of the Transitional Federal Government (TFG).

The Islamists claim the troops have been deployed inside Somalia to support the TFG. But the UN-backed government has denied the presence of Ethiopian troops, claiming that the only Ethiopians in the country are military instructors.

Somalia has been in the grip of warlords and militias for years and has not had a functioning national government since 1991.

(Xinhua News Agency November 2, 2006)