At least four people have been kidnapped and five foreign tourists killed in an attack near the Eritrean border, the Ethiopian government says.
German, Hungarian and Austrian nationals were killed in Tuesday's attack in the remote Afar region, official spokesman Bereket Simon said.
Two German tourists and an Ethiopian policeman and driver were then abducted, he said.
Eritrea has denied the accusation by Ethiopia that it was behind the attack.
Ethiopia has threatened "whatever action is necessary" against its neighbour over the tourist killings.
"The government cannot and should not sit idly by while the regime in Asmara continues to sponsor acts of terror within Ethiopia's territory with impunity," it says in a statement published on the country's foreign affairs website.
An Eritrean official dismissed the accusation and said it was common practice for the Ethiopian government to blame his country for anything happening in Ethiopia.
The BBC's East Africa correspondent Will Ross says there is a danger that this incident could further fuel the animosity between two nations that are already bitter enemies.
The tourists are believed to have been visiting a volcanic region in Afar - which correspondents describe as extremely hot and inhospitable - when they were attacked before dawn on Tuesday.
Banditry is common in the area where both Eritrean and Ethiopian separatist rebels have operated.
Two Germans, two Hungarians and an Austrian were killed in the attack, according to Mr Bereket, the Ethiopian government spokesman.
Two others were seriously hurt and a third is said to have escaped the attack unharmed, Ethiopian Television (ETV) reported.
The two injured tourists - both believed to be Belgian - had been taken to a clinic by the military, it said.
The four people kidnapped were taken over the border to Eritrea, Mr Bereket said.
He blamed the attack on gunmen who he said were "trained and armed by the Eritrean government".
"It is the usual terrorist activity by the regime," he told Reuters news agency.
But such allegations were an "absolute lie", Eritrea's ambassador to the African Union, Girma Asmerom, told Associated Press news agency.
Correspondents say that Ethiopia routinely accuses Eritrea of supporting rebels.
Eritrea gained independence from Ethiopia in 1993, but when a border war broke out five years later, tens of thousands of people were killed. Since then things have remained tense.
In 2007, five Europeans and 13 Ethiopians were kidnapped in Afar. Ethiopia accused Eritrea of being behind that kidnapping, though Eritrea blamed Ethiopian rebels.
The hostages were all eventually released and Ethiopia says it will try to free those who were abducted on Tuesday.
In December, the UN imposed limited sanctions on Eritrea after it was accused of arming Islamist insurgents in Somalia. Eritrea denies the allegation.
Ethiopia has now called on the international community "to get serious about the destabilising role" of its neighbour.