Two members of the US-led forces were also injured after fighting broke out early on Monday in Paktia province.
The battle began when fighters fired a dozen rockets in a bid to kill a former Afghan military chief on a road between Kabul and Gardez, the capital of Paktia province, security commander Ghulam Nabi Salem told AFP.
Kheyal Baaz Khan Sherzai, the ex-military commander of neighbouring Khost province, survived the attack.
"But Afghan forces chased the attackers in the mountains and the fighting began. It lasted until late afternoon," Salem said.
US-led military air support was then called in, he added. Twelve fighters were killed and their bodies were recovered by local troops and US-led forces.
"We recovered the bodies of 12 Taliban in Shiwak's mountains," Salem said, referring to a mountainous district some 35km south of Gardez.
The US military confirmed that its air and ground forces were engaged in the incident but did not confirm the Taliban fatalities.
An AFP correspondent in the area saw at least four US helicopters and a jet flying overhead near Shiwak and also heard loud bangs, similar to air bombardment.
The battle comes in the middle of an apparent spring offensive by the Taliban, who have emerged from Afghanistan's harshest winter in a decade to launch a string of attacks on US and Afghan forces.
There have been a string of
attacks blamed on the Taliban
More than 18,000 US-led forces, including about 2000 American airmen are based in Afghanistan to help root out the remnants of the Taliban. The US-led coalition ousted the Islamic government in late 2001.
Sherzai, accompanied by a group of his soldiers who had been disarmed under a government and United Nations-backed programme, were travelling to Kabul when the attack took place.
Meanwhile Afghan forces on Sunday arrested six suspected Taliban fighters in Uruzgan province, also in the restive southeastern Afghanistan, according to a military commander.
"We arrested six Taliban," General Muslim Hamed, military commander of southern Afghanistan told AFP. "We had intelligence about their presence in the area," he added.
Dozens of people, including soldiers, police and civilians have been killed in Taliban-linked violence this year. In 2004 bloodshed blamed on the Taliban left more than 850 dead.