Macedonian media reported three people had been killed while four others were wounded in the remote village of Brest in the fighting, the biggest in the country's crackdown against guerrilla insurgency.
"The armed groups have been dispersed and neutralised in that region," a police statement said.
"Several members of the armed group have lost their lives because they used weapons while resisting arrest," the statement further added.
But Albanian mayor Husamedin Halili, in the nearby municipality of Lipkovo condemned the operations, which prompted many scared civilians to run away from the village.
"Several members of the armed group have lost their lives because they used weapons while resisting arrest"
A statement by the Police
"To see women and children leave their homes should not be the way a government solves its problems," he said.
Kosovo Prime Minister Bajram Rexhepi, an Albanian, expressed concern as well over the clash. "The Kosovo government is worried about the civilian population in Macedonia," he said.
Macedonia has seen sporadic incidents since an ethnic Albanian rebellion ended two years ago with a Western-backed peace accord. The main guerrilla force agreed to lay down arms in return for better rights for the large Albanian minority.
The Albanians are mainly Muslims while Macedonians are predominantly Christian.
Police last week launched a hunt for gunmen who abducted and briefly held two policemen.
Government officials said the security forces ewre searching for gangs claiming to belong to the shadowy Albanian National Army (ANA), which rejected the peace deal prompting the United Nations to declare it a terrorist organisation.
ANA, which has claimed responsibility for several incidents in the Balkans over the last two years, accused security forces of using helicopter gunships to shell Brest and another village.
ANA alleged a civilian had also been killed in the clash.