"We are getting information that armed confrontation broke out between Al-Shabaab and the Liyu police this morning around Ato," Mohamud Adan, a local security official in the nearby town of El-Berde, told AFP by phone.
"The terrorists fired rounds of mortar shells before the direct confrontation started," he added.
Adan went on to say "The forces have managed to repel the desperate terrorist attackers and there are some casualties even though we don't have the details."
Madker Mursal, a security commander in the Ato area, said the militants used mortar and artillery fire in the attack that lasted almost two hours, and that Ethiopian forces responded, with backup from combat helicopters.
There was no immediate response to an AFP request for comment from the authorities in the Somali region of Ethiopia.
The Al-Qaeda linked Al-Shabaab claimed the attack in a brief statement, saying its fighters had overrun the base and killed over 100 Ethiopian police.
In separate incident in southern Somalia on Friday, a local government official and his son were killed in a roadside bomb blast, police said.
The justice minister for South West state, Sheikh Hassan Ibrahim, was leaving a mosque after Friday prayers "when the explosion ripped through his car", local police officer Hussein Yerow said.
Al-Shabaab has waged a bloody insurrection against Somalia's fragile federal government for 15 years and remains a potent force despite an African Union operation against the group.
Its fighters have been ousted from Somalia's main urban areas, including the capital Mogadishu in 2011, but continue to wage attacks on military, government and civilian targets.