The militants fought fierce battles on Kudha island, situated in the autonomous Lower Juba region and around 70 kilometres southwest of the port city of Kismayo.
Security sources said the attack by the rebels appeared to be their largest conventional assault since their leader, Ahmed Abdi Godane, was killed in a US air strike in September.
"There was heavy fighting inside Kudha village. Al-Shebab fighters entered from two directions and pushed out the local forces," Adan Isa, a local elder, told AFP by telephone.
Several Somali media reports also said the rebels were now in control of Kudha island -- which has changed hands several times in recent months -- and that up to 70 fighters had been killed.
Jubaland military officials in Kismayo, however, denied that the island had fallen.
Local forces, backed by Kenyan troops fighting with the African Union AMISOM force, were reported to have seized the island just over a week ago.
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