Armed with machineguns and rocket-propelled grenade launchers, the Taliban mounted a series of attacks on Friday and fighting went on for several hours.
The deputy governor of the province said that the village near the scene of the clash was now empty of people who fled on Saturday in fear of more fighting.
Officials in the provincial capital, Lashkar Gah, said that 200 fighters were involved in the attacks and 20 of them were killed. Five policemen were killed and 16 wounded.
But a Taliban spokesman, speaking by satellite telephone from an undisclosed location on Friday, denied that Taliban forces had suffered heavy casualties.
Qari Mohammad Yousuf said 100 Taliban had been involved and only two were wounded. He said 12 policemen, including a senior officer, had been killed.
Wave of attacks
Helmand has been plagued by insurgents since US forces and their Afghan allies expelled the Taliban in late 2001. It is also a region where poppy growing and drug-smuggling is rife.
Several thousand British and Dutch troops will be deployed there later this year under a plan to expand Afghanistan's peacekeeping force led by Nato.
Dozens of people, most of them civilians, have been killed in a wave of attacks - including 14 suicide bombings - across the south and east in recent months, but there have been no clashes on a large scale.
The spokesman for the Afghan interior ministry said that coalition planes dropped bombs on the Taliban during the fighting. The Taliban forces denied having suffered heavy casualties.