Fear has gripped the IDPs in the past two weeks after mobs attacked them and their businesses over suspicions that they were involved in explosions in the town.
Thousands of people from southern Somalia have fled north to Puntland in recent years as violence escalated in their home areas.
Galkayo mayor Abdirahman Mahamud Haji told IRIN on 21 December that the attacks, targeting mostly IDPs from the south, had to stop.
"We are not going to tolerate anyone attacking or looting property belonging to the displaced," Haji said.
Cases of killings and explosions have increased in the past six weeks, with "rumours" attributing the trend to the displaced community.
"These attacks are caused by criminals and we will deal with them accordingly. They should not be blamed on innocent IDPs," said Haji.
He called for a stop to the "rumours and suspicions" about the displaced, saying the IDPs were fellow Somalis and "this is their country; they should not feel outsiders at all and should have no reason to fear".
Haji said the attacks against the IDPs were "unfortunate and regrettable and [that] Puntland authorities at all levels was opposed to them; we will do everything in our power to make sure that people feel safe".
At the same time, the UN Office for the Coordination of Humanitarian Affairs (OCHA Somalia) said it was "very concerned" over the IDP situation in Puntland. The agency said it had initiated discussions with authorities on how best to address the situation.
The insecurity had affected all aspects of the lives of the displaced, including their ability to make a living, said an IDP, who requested anonymity.
"I had a small business but it was looted 10 days ago when we were attacked by a mob," he told IRIN. "It was not much but we were not begging. Now I have nothing and I don't know where the next meal for my family will come from."
The IDP said he had been in north Galkayo for more than four years and had never encountered any problems until now. "Now we run to the south [Galkayo, in the self-declared state of Galmudug, Central region http://www.irinnews.org/Report.aspx?ReportId=85998] with nothing."
He said many of the displaced would go back to their areas of origin if they had help. "I am sure many of us will want to go back but we don't have the means."
Haredo Abdi, a displaced mother of four, said she was sheltering in south Galkayo, along with other families. "We ran for our lives when the mobs came; we left everything behind."
She said despite assurances by the Puntland authorities, she would not go back to north Galkayo. "When I left Mogadishu and came here, I thought we had a safe place but it no longer feels safe."
Abdi appealed to aid agencies to help the newly displaced. "We are sitting in the open. We need help with food and shelter."