The ambush on Sunday near the town of Khenchela, 600km east of the capital Algiers, is the latest violence to hamper efforts to end a conflict which has cost up to 200,000 lives and $30 billion in damage since 1992.
A bomb exploded when an army truck was on its way to supply a military detachment with drinking water. Rebels then opened machinegun fire killing 11 soldiers, the leading Arabic-language newspaper El Khabar reported.
Ground troops, backed by two helicopters, were hunting the armed attackers who fled to a nearby forest. One assailant was killed in the attack.
Newspapers said the "Salafist Group for Preaching and Combat (GSPC)" was behind the attack. Government officials were not immediately available for comment.
In another incident, seven troops were wounded when a home-made bomb exploded on Sunday in the eastern province of Skikda.
Algeria's countryside has been
rid of violence in recent years
Security experts say GSPC, Algeria's main rebel group, has stepped up attacks to sabotage a general amnesty expected to be offered to rebels and members of the armed forces this year.
Government forces have launched an offensive in eastern and western Algeria in the last few weeks.
Conflict broke out in Algeria in 1992 after cancelled legislative elections prevented the likely winner, an Islamic party, from coming to power.
Violence has sharply fallen in recent years, bringing back much needed investment.