* AU troops cautious about entering Kismayu
* Al Shabaab says poised for combat in city and jungle
* Some residents flee port city
By Abdi Sheikh and Feisal Omar
MOGADISHU, Sept 30 (Reuters) - Kenyan warships shelled the southern Somali port of Kismayu overnight after al Qaeda-linked rebels said they had abandoned the city, residents said on Sunday.
Stunned by an assault by sea, air and ground forces late on Friday night, al Shabaab rebels fled the city that had been their key source of revenue, retreating to surrounding forests and towns.
The shells may have been targeting any remaining pockets of resistance or military installations in the city that was the rebels' last stronghold.
"The ships were firing deafening shells to the outskirts last night but several shells landed on houses," said Samira Ismail, a local mother of four.
Al Shabaab said two children were killed and other people injured by the shells, a statement rejected as propaganda by Kenyan military spokesman Col. Cyrus Oguna.
Kenyan and Somali troops sent to retake Kismayu from the rebels were still in the town's outskirts, Oguna said, proceeding carefully in case al Shabaab's claim that it had abandoned the city was a ploy to lure them into a trap.
"The troops are consolidating and making plans to expand into the southern part of the city," Oguna told Reuters.
"A lot of caution must be exercised here. We don't want to get into a situation where we start to lose troops here and there."
The southern part is the city centre and whoever wins it will effectively have control over the port and other strategic installations.
The Kenya Defence Force and the Somalia National Army, fighting under the flag of the African Union force in Somalia (AMISOM), have not suffered any casualties in the operation, Oguna said.
An al Shabaab official said that although the group had ceded control of Kismayu, its fighters were poised to engage the allied troops once they enter the city.
"We are just waiting for the AU and Somali troops to enter the town. We shall fight them in streets and alleys. We abandoned the town. Why don't they go in if they have the guts?" Sheikh Hudayfa Abdirahman, the group's head of Jubba region, told Reuters.
In Kenya's capital Nairobi, a nine-year-old boy was killed and three children wounded by a hand grenade thrown into a Sunday school session in a church on Sunday, an act police said was the work of al Shabaab sympathisers.
"FIGHT THE ENEMIES IN MUDDY JUNGLES"
Somalia analysts said although al Shabaab had retreated, it was far from vanquished.
The rebel group, which counts foreign al Qaeda-trained fighters among its ranks, is seen as one of the biggest threats to stability in the Horn of Africa. It has received advice from al Qaeda's leadership, counter-terrorism experts say.
The insurgents, who once controlled swathes of the lawless Horn of Africa country, have turned to guerrilla tactics, harrying the weak government of newly-elected President Hassan Sheikh Mohamud with suicide bombings and assassinations.
Abdirahman said the onset of rains would help al Shabaab fight back.
"We shall fight the enemies in the muddy jungles between Kismayu and Kenya. Enemies will be stuck in the mud. We are sure the enemies will never rule peacefully," he said.
Kismayu residents said the chaos was causing hardships.
"Food prices and dollar value have risen a bit this morning. If the situation remains this way for days, we anticipate inflation and then starvation," said shopkeeper Abdullahi Nur.
Some civilians fled the city in minibuses on rough roads that twist through the surrounding jungles.
"I will also evacuate my children if Kismayu does not change positively," said Ismail, the mother of four.