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Las Anod mayor Abdirahim Ali Ismail said armed confrontation escalated between civilians and the military in the town on Wednesday after a local merchant was shot dead.
Maalim Ayman, who leads Al-Shabaab's attacks in Kenya accused of having a role in the deaths, and injuries to US personnel.
Already the military operation involving local clan militias saw the liberation of dozens of villages and key towns in Hiran, Galgadud and Middle Shabelle regions from Al-Shabaab within three months.
The Somali leader also accused some public servants of stealing money to fund their trips to the Hajj – the holy pilgrimage undertaken by healthy Muslim faithful to Mecca in Saudi Arabia.
The insurgents have found themselves hard-pressed since August when President Hassan Sheikh Mohamud rolled out a military offensive shortly after coming into office.
Despite the offensive, al Shabaab has carried out frequent attacks in recent months, including several in the capital Mogadishu against government installations and hotels.
Mohamud has been trying to rally Somalis behind the government, and in his speech he referred to al-Shabab as Khawaarji, a term referring to a person who deviates from the path of Islam.
President Bihi accused the Somali government of being behind the unrest in Lasanod and said that Somaliland will defend its land if the 5 regional administrations of Somalia attack the city.
Businesses have been closed for the second week, as the residents staged demonstrations to demand the withdrawal of the Somaliland troops who have been in control since 2007.
According to the source, the first victim was shot in the chest whereas the second one who tried to peep to observe what had happened was shot three times in the head as the soldier went on rampage.
Eritrea trained 5,000 soldiers from Somalia whose training caused a political debate in the country during the last year's electioneering period.