Two suspected members of the Fano militia, an Amhara regional force, were killed in a shootout with police in the Ethiopian capital on Friday.
A civilian was also caught in the crossfire and died, raising concerns about the potential for wider violence.
The Fano militia, which initially supported the government in its fight against Tigrayan rebels, turned against federal forces in the Amhara region last year.
The central government responded by imposing a state of emergency in the region, which was recently extended.
The escalation in Addis Ababa marks a new chapter in the conflict.
Tensions remain high after a peace agreement between the government and Tigrayan rebels was seen by some Amhara nationalists as a betrayal.
The Fano claim territory is currently under Tigrayan control.
Police claim the suspects were planning a terrorist attack and refused to surrender when confronted.
One suspect died at the scene, another succumbed to injuries in the hospital, and a third was arrested.
Two police officers were also wounded in the exchange.
The incident highlights the growing concerns over human rights violations in Ethiopia.
Human Rights Watch recently called for a UN investigation into alleged war crimes committed by the Ethiopian army in Amhara.
Additionally, the Ethiopian Human Rights Commission reported at least 45 civilian deaths in clashes between the Fano and government forces earlier this year.
With tensions simmering and violence spilling into the capital, the international community is watching closely for signs of further escalation within Ethiopia.
