Lebanese security sources said Israeli soldiers had landed by helicopter near the al-hikmah hospital in Baalbek in the eastern Bekaa valley early on Wednesday as aircraft launched several strikes in the region.
A Hezbollah source said several Israeli soldiers were trapped in the hospital, engaged in fierce clashes with the group's fighters who surrounded the facility.
Hussein Rahal, a Hezbollah spokesman, said: "A group of Israeli commandos was brought to the hospital by a helicopter. They entered the hospital and are trapped inside as our fighters opened fire on them and fierce fighting is still raging."
Rahal said Hezbollah fighters were using automatic rifles and rocket-propelled grenades and dismissed as "untrue" reports that the commandos managed to snatch some patients from the hospital and take them away in helicopters.
He said Israeli jets were attacking the surrounding Hezbollah forces with rockets. The Israeli military refused to comment.
Witnesses in Baalbek also said that there was fierce fighting with assault rifles, grenade-launchers and machine guns around the hospital.
Israeli helicopters fired rockets at targets near the hospital and other targets in the city.
"A group of Israeli commandos was brought to the hospital by a helicopter. They entered the hospital and are trapped inside as our fighters opened fire on them and fierce fighting is still raging"
Hussein Rahal, a Hezbollah spokesman
Witnesses also said a private hospital in Baalbek, filled with patients and wounded people, was bombed by Israeli helicopters late on Tuesday.
Baalbek is about 100kilometres north of the Litani River, which the Israelis had set as a northern boundary for their expanded ground operation, announced early on Tuesday.
The ancient city with spectacular Roman ruins was a former Syrian army headquarters and included the barracks of the Iranian revolutionary guards when they trained Hezbollah fighters there in the 1980s.