Eleven insurgents were shot dead while another 21 died after their base in Mian Nisheen was bombed on Tuesday, according to Kandahar security commander General Muhammad Salem.
Hundreds of Afghan security officials were involved in the attack, just days after captured 30 police officers and a district chief in an embarrassment to the provincial government.
Taliban executed eight policemen, including the district police chief, before announcing the release of the remaining 23 people.
The deputy provincial police chief, Salim Khan, said some 400 police officiers were involved in the raid, backed by US air support.
"We chased the Taliban to an area 10km north of Mian Nishin. We found them in a village called Murghai," Khan added that 15 suspects had also been arrested.
Mian Nishin is in the north of Kandahar province, about 400km southwest of Kabul, and was the scene of operations by Afghan and US-led forces last week in which government officials said nine guerrillas were killed.
In a separate incident in Kandahar, an Afghan employed by the joint Afghan-UN election body was shot dead and another wounded in an ambush on Tuesday, according to district chief Khan Agha.
Kandahar province has been the worst hit in a surge in insurgency-related violence in southern Afghanistan in recent months that has killed hundreds of people and raised concerns about holding parliamentary elections on 18 September.
The US military said it had killed 15 to 20 suspected Taliban in air strikes on Sunday in neighbouring Helmand province after US and Afghan troops came under fire. Afghan officials reported 21 more insurgent deaths in clashes later that day.