Thursday's clash was believed to be the largest since King Gyanendra sacked the government on 1 February for failing to stem the Maoist rebellion that has claimed more than 11,000 lives since 1996.
"As the search is going on, we expect to recover some more bodies of the rebels," the army official, who declined to be named, said on Sunday.
Three security force personnel were also killed in the fighting, he said.
On Saturday, state television said 96 rebels had been killed after rebels launched a large-scale attack on Thursday night on a security forces' base at Khara village, about 400km west of the capital.
It was not possible to independently verify details of the clash in the remote area.
The all-powerful king has cracked
down hard on communist rebels
The spike in violence came as a human-rights report published on Saturday said the Maoist insurgency left seven people dead on average each day last year.
"In 2004, 2681 people, of whom 1077 by the Maoists and 1604 by the state, were killed," according to the report by the Informal Sector Service Centre, an independent non-governmental organisation in the Himalayan country.
The report covered the period before Gyanendra sacked the government and declared emergency rule, imposed press restrictions and rounded up political activists in a move that prompted India and Britain to suspend military aid.