Ethiopian forces have launched a military assault on positions inside Eritrea, Ethiopian officials have said.
Ethiopia attacked because Eritrea was training "subversive groups" to carry out attacks inside Ethiopia, a government spokesman said.
A number of people were killed and others captured when three camps were attacked, a defence official said. Eritrea has not yet commented.
The two countries fought a border war from 1998 to 2000.
Despite signing a peace treaty, tensions between the two countries have remained high ever since.
However, Thursday's dawn raid is the first attack by Ethiopian troops inside Eritrean territory since the end of the war, in which some 80,000 people died.
The United States has called on both countries to "exercise restraint and to avoid any further military action".