The ambush was not immediately confirmed by the Algerian authorities but a vast security operation has been launched in the region.
Rise in violence
The government of Algeria, a major oil and gas producer, has struggled for nearly two decades to combat fighters who now operate under al-Qaeda's banner.
In recent weeks there has been a rise in violence across the country.
In late May fighters killed five paramilitary gendarmes and a week later shot dead nine soldiers.
In early June, Edwin Dyer, a British man, was killed by suspected al-Qaeda fighters who had been holding him hostage in neighbouring Mali.
Violence began in Algeria in 1992 when a military-backed government scrapped elections that a radical Islamic party was poised to win.
About 150,000 people have died in the ensuing violence.