Witnesses from the disputed Sool region reported on Friday seeing at least nine people killed in the fighting, during which they said troops from both sides used heavy artillery, machine guns, rocket-propelled grenades and anti-aircraft guns mounted on pickup trucks.
Reporting on the violence over VHF radio, residents said troops wounded in battle had been taken to a hospital in Sool's capital, Laas-anood, 30km from the battle zone.
It was unclear what sparked the fighting between the two forces, which have been watching each other warily after brief clashes early this month in the region largely held by Puntland.
Somaliland Defence Minister Ismail Adan Umar accused Puntland troops of attacking his forces from three different directions in the divided Ari-adeeye village.
Attack accusations denied
Puntland's minster of information denied the charge, and accused Somaliland troops of attacking defensive positions held by his troops.
Former dictator Muhammad Siad
Barri was ousted in 1991
The north-eastern region of Puntland, which was led by Abd Allah Yusuf Ahmad until he was elected Somalia's transitional president on 10 October, has clashed three times with Somaliland over Sool, one of their two disputed border regions.
One independent journalist, Said Ali Adani, said three Puntland troops, five from Somaliland and a civilian had been killed, but the deaths could not be officially confirmed.
The country of seven million - ruled by clan-based militias since the dictator Muhammad Siad Barri was ousted in 1991 - has been struggling to establish peace and order after 13 years without a central government.
Newly elected president
Just two weeks ago Yusuf was sworn in as the new president, elected by the 275-member interim parliament after lengthy talks based in the Kenyan capital, Nairobi.
On Friday, representatives from international participants in Somalia's peace process were meeting in Stockholm, Sweden, to discuss ways to help the new transitional government move from Kenya back to Somalia's capital, Mogadishu. Previously, it has been too unsafe for the government to work from there.
The representatives of the European Union, United Nations, Arab League, United States and the African Union were also discussing the use peacekeepers to stabilise the country and its nascent government.