The charity, which supports persecuted Christians worldwide, said at least three Christians had been killed and many more injured in Asendabo, in the predominantly Muslim Jimma Zone.
The attacks were carried out on the Christian community after Muslims accused a Christian of desecrating a copy of the Koran.
There are reports that around 55 churches and dozens of homes have been torched, with other properties looted by a mob of Islamists said to number in the thousands.
Barnabas Fund said that churches in Jimma city have been “overwhelmed” by the number of Christians who have arrived in the city seeking safety.
The churches are struggling to meet the needs of around 10,000 displaced Christians, many of whom are in urgent need of food, medicine, shelter, blankets and clothing.
Muslims make up around one third of the population in Ethiopia and have traditionally lived peacefully alongside the Christian majority.
Barnabas Fund said, however, that some Muslims were becoming increasingly radicalised by preachers from Saudi Arabia and Pakistan who are promoting more aggressive forms of Islam.
A Barnabas Fund staff member who returned from Ethiopia on Monday said: “The manner in which Christians have been terrorised by radical Islamists is truly shocking. This has been a very distressing time for the believers.”
After initially coming under criticism for failing to contain the violence, Barnabas Fund said security forces were reportedly making a more concerted effort to calm the situation.
Barnabas Fund is sending a grant to help churches in Jimma city cope with the arrival of displaced Christians.
International director of Barnabas Fund, Dr Patrick Sookhdeo, said: “This totally disproportionate response by Ethiopian Islamists to a perceived offence by one Christian has precipitated a humanitarian crisis.
“Our brothers and sisters in western Ethiopia urgently need our prayers and practical assistance amid this devastation.”