"Our defence forces have the capacity to deter aggression and to repulse it if it occurred," Meles Zenawi told MPs.
Eritrea has yet to comment. The two neighbours fought a border war from 1998-2000, in which hundreds of thousands of people were killed.
They back rival sides in Somalia and there had been fears that they could clash there through local proxies.
United Nations peacekeepers are monitoring a buffer zone along the border but Ethiopia has long accused Eritrean troops of infiltrating the zone.
Under the deal to end their war, an independent boundary commission ruled on where the countries' border should lie in 2002.
It awarded the town of Badme to Eritrea but Ethiopia has not handed it over.
Mr Meles told parliament that he did not agree with the border ruling but said he accepted it.
"We believe the ruling was wrong, we still believe it is wrong, but we accept the ruling even though it is wrong."
Eritrea wants the international community to put more pressure on Ethiopia to comply with the ruling but has not commented on Mr Meles' statement.
In November 2006, the commission gave the rivals a year to physically demarcate their border or risk having it set for them.