Boko Haram fighters have stormed Gulak in the northern part of Adamawa state, near the hilly border with Cameroon where the fighters are believed to have bases.
Sabo Lukas, a witnesses who spoke to the Reuters news agency, said he saw the men from the armed group storming house to house and firing at residents, explaining that he was unable to keep count of the number of victims.
"As I am talking to you they are still there killing people," Lukas, who escaped to the Adamawa state capital, said.
Tanko Wazumtu, an aide to Adamawa state Acting Governor Alhaji Ahmed Umaru Fintiri, also confirmed the attack, saying his own father was among those killed.
Gulak is about 50km southwest of Gwoza, a border town in neighbouring Borno state seized by Boko Haram last month and where the group's leader, Abubakar Shekau, proclaimed a "Muslim territory" in the northeast.
Last month, the armed group captured the remote farming town of Gwoza, along the Cameroon border, during heavy fighting.
Another town, Madagali, between Gwoza and Gulak, had already been attacked previously.
Nigeria's President Goodluck Jonathan, who will face elections in February, has come under criticism for his inability to deal with the armed group, which wants to implement Islamic law, for the past five years.
Boko Haram, whose name translates to western education is forbidden, have killed thousands of people since their uprising in 2009.
Nigeria's army says it is fighting to reverse Boko Haram's recent gains, which have raised fears that the group may
try to capture the Borno state capital Maiduguri.
Nigerian military officials in Yola and in the federal capital Abuja did not respond to requests for comment, Reuters said.