An army officer said on Thursday that the fighting had begun on Wednesday evening in the western town of Dhangadhi after the rebels attacked many government installations.
"The policemen went out of contact after the Maoists stormed a post where about 30 policemen were having dinner," the officer said, without giving further details.
Another army officer said reinforcements had been sent and the guerrillas, who wanted to storm a local jail, were repelled.
"The situation is under control," he said.
However, the independent Kantipur radio said 20 policemen
were missing and three people, including a civilian, had been wounded.
Dhangadhi, a Maoist stronghold, lies about 660km west of the capital Kathmandu on the border with India.
The Maoists have been fighting since 1996 to replace the monarchy with a communist republic in the world's only Hindu kingdom, a conflict that has cost more than 12,500 lives and shattered the Himalayan kingdom's tourist and aid-dependent
On 2 January, the Maoists ended a four-month ceasefire, accusing the royalist government, which had refused to match the truce, of provoking them to break it.
They have threatened to extend their revolt from rural areas to cities and towns.