The al-Anbaa daily said rebel forces in Northern Darfur sustained significant casualties in the Dissa area near Kutum, about 900 km west of the capital Khartoum.
The paper did not say when the battle took place, but fighting left hundreds killed - including one of the most prominent rebel commanders, Khatir Tor al-Khila.
Deputy leader of the SLA, Abd Allah Abakr, was also among those killed in the clashes, the paper added.
There was no immediate comment from the rebel group about the report.
To date, the government has refused to negotiate with the SLA that emerged as a fighting force in February 2003, although Khartoum is currently holding peace talks with another southern-based rebel group.
Sudan Liberation Movement
The SLM since late February 2003 has carried out several attacks on government forces in the remote and partly desert region of Darfur, which lies on the border with Chad.
Founded March 2003
Seeks a devolved, federal Sudan
Chief spokesman, Mani Minawi, based in Cairo
Denouncing policies of alleged “marginalisation, racial discrimination, exclusion, exploitation and divisiveness”, the SLM and its military wing, the SLA, announced their formation in March 2003.
Its objective is complete restructuring and devolution of power for all regions of the largest African country.
Minawai said in March the “SLM shall struggle to achieve a decentralized form of governance based on the right of Sudan’s different regions to govern themselves autonomously through a federal or confederal system.”
The main rebel Sudan People's Liberation Army (SPLA) said on Monday that its peace talks with the government had hit an impasse over procedure.
"We're stuck on procedural matters. Until we break the impasse we're not going to discuss substantial matters," said Samson Kwaje, spokesman for the SPLA.
"Mediators are trying to get a way out to overcome this impasse," he told Reuters.
Kenyan chief mediator Lazaro Sumbeiywo said the current round of talks was tough, but he remained optimistic negotiations would be successful.
The civil war in Africa's biggest country erupted in 1983 and largely pits the government in the north against rebels seeking more autonomy in the south.
Oil, ethnicity and religion have all helped fuel the 20-year conflict that has killed two million people.