About 100 members of the ML Janajuddah group were holding a meeting when police raided. Eleven were killed during a gun battle and another 50 arrested, a police official said. About 50 people were wounded including some police officers.
Police and members of the Rapid Action Battalion – an elite unit which includes military personnel - seized dozens of guns and ammunition from the hideout at Barshal, a village 200km northwest of the capital, Dhaka.
Police Superintendent Mirza Abdullahil Baki said: "We had planned the raid on a tip off that the Marxists group will hold a meeting at this remote village."
The ML Janajuddha group operates in the north of the country and says it is trying to help the poor.
The group is a faction of the banned Purbo Bangla Communist Party (PBCP) which is blamed for a number of assassinations in northwestern and southwestern Bangladesh in recent years. The PBCP aims to overthrow the government and replace it with a communist state.
Most of members of the organisation have turned their backs on the political agenda and have taken up arms to raid villages and police stations, police and government officials said.