Officials said on Monday that a policeman and at least one fighter were killed in the overnight attack in Ilam, a tea-growing area bordering India, about 600km east of Kathmandu.
The rebels drove into Ilam in buses and trucks, attacking government buildings and shooting at security posts, residents said.
"The Maoists also stormed the local jail and freed more than 100 prisoners including some Maoists," a police officer said by phone.
He said the rebels, who are fighting to overthrow Nepal's constitutional monarchy, bombed or set fire to the district administration office building, the revenue office and the local municipal council office.
Kamala Bhattarai, a resident of Ilam, said: "We spent the night in terror. We could hear gunshots and explosions for several hours."
More than a dozen security troops were wounded in the fighting.
The rebels also set ablaze the home of the mayor who was elected in last month's municipal elections opposed by the Maoists, Rohit Chandra Bhattarai, a journalist, said.
"The building is still smouldering. No one has come out of their homes. People are scared," he said.
Bhattarai said the fighting continued until dawn when an army helicopter was seen and the rebels sped away in buses.
The Maoists, fighting since 1996 for a single-party communist state, have stepped up attacks since they ended their unilateral truce in January after the royalist government failed to reciprocate.
More than 13,000 people have been killed in the revolt, which has shattered Nepal's aid-dependent economy, one of the world's 10 poorest.