"It is very sad that all these fabrications have made their way into the minds of many," Issaias told reporters in Kampala at the end of a three-day state visit.
The leader of the secretive Horn of Africa state said the Al-Qaeda-inspired Shebab rebels were being used by those who want a divided Somalia, but did not elaborate on who they were.
"I don?t want to talk about Shebab. You get this out of your mind," said Issaias. "Somalia is not Shebab. This obsession with Shebab is what is causing the problem there."
"Shebab is serving the interests of those who want to maintain the disintegration of Somalia," he added.
Issaias was in Uganda for talks on regional security with his counterpart Yoweri Museveni.
Uganda has sent thousands of troops for the African Union force protecting the Somali government that the Shebab insurgents have been fighting to overthrow.
Issaias's visit came at a time when Eritrea's arch-foe Ethiopia and Djibouti are leading East African calls for tougher United Nations sanctions against Eritrea over terror charges.
Last month, the UN Monitoring Group on Eritrea and Somalia said Asmara was behind a plan to bomb an African Union summit in January in the Ethiopian capital Addis Ababa. It also accused Eritrea of backing the Shebab.
However, Museveni said he took Issaias's word that Eritrea was not backing the Somali rebels.
"Eritrea is not supporting Al-Shebab.... I accept it because he told me," Museveni told reporters. "He is an honourable comrade and not someone who has just walked out of the slum."
At the start of his visit Tuesday, the Eritrean leader said he had drawn lessons from his talks with Museveni. He said on Thursday that he did not seek the talks due to pressure over the recent accusations.
"No pressure can be exerted on Eritrea on fabricated lies, no one will care about that. This is sickness in my opinion," Issaias said.
He dismissed as "an illusion or a delusion" the theory that he had come to Kampala to ask Museveni to "save his neck."
Eritrea has however recently sought to end its regional isolation and applied to rejoin the Inter-Governmental Authority on Development, an East African regional bloc, four years after it pulled out.
IGAD noted this month that Asmara was still facing serious accusations of supporting Somalia's Islamist insurgents but has not so far taken a decision on whether to allow Eritrea to re-join.
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