Somalia has vowed to defend against Ethiopia's "aggression" and "blatant assault" on its sovereignty after the landlocked and second-most populous country on the continent signed a memorandum of understanding (MoU) with Somaliland, giving Ethiopia long-desired access to the Red Sea.
AU Commission chair Moussa Faki Mahamat issued a statement appealing for "calm and mutual respect to de-escalate the simmering tension" between Ethiopia and Somalia.
He called on the two nations to engage in a negotiation process "without delay" to settle their differences.
Faki also urged them to "refrain from any action that unintentionally may lead to a deterioration of the good relations between the two neighboring Eastern African countries."
"He stresses the imperative to respect unity, territorial integrity and full sovereignty of all African Union member states," the statement said.
Somaliland, a former British protectorate of about 4.5 million people, declared independence from Somalia in 1991, a move not recognized internationally and staunchly opposed by Mogadishu.
The United States on Wednesday rejected international recognition for the separatist region and also called for talks to resolve the crisis.
"The United States recognizes the sovereignty and territorial integrity of the Federal Republic of Somalia within its 1960 borders," State Department spokesman Matthew Miller told reporters.
"We join other partners in expressing our serious concern," he said, "about the resulting spike in tensions in the Horn of Africa."
"We urge all stakeholders to engage in diplomatic dialogue."
The wide-ranging deal signed in Addis Ababa gives Ethiopia access to commercial maritime services and a military base, with Somaliland leasing it 20 kilometers (12 miles) of coastline for 50 years.
Somaliland's leader Muse Bihi Abdi has said that in exchange, Ethiopia would "fully recognize" Somaliland but this has not been confirmed by Addis Ababa.