Turkish troops and Kurdish fighters have frequently clashed in Diyarbakir during the 27-year conflict [EPA]
An ambush in Diyarbakir, in Turkey's mainly Kurdish southeast, has left 13 Turkish soldiers and seven Kurdish fighters dead, according to the Turkish military.
Thursday's clash is the deadliest since the Kurdistan Workers Party (PKK) ended a ceasefire in January.
The attack reportedly started when fighters threw grenades into a heavily wooded area where soldiers had been.
The grenades started a fire, which killed the 12 soldiers and wounded at least seven others, a statement released by the Turkish military's chief of staff said.
"Turkey will succeed in overcoming the terror and the powers behind it without compromising democracy, justice and brotherhood," Tayyip Erdogan, Turkey's prime minister, said in a statement.
Immediately after the attack, Erdogan met army and intelligence chiefs as well as the interior minister and head of the paramilitary forces in Ankara.
Security forces, backed by warplanes, launched a hunt for the rebel fighters in the mountains of Diyarbakir province.
After ending its six month old ceasefire, the PKK transitioned to what it calls an "active defence" stance, whereby its fighters defend themselves if threatened.
Last week the jailed leader of the PKK, Abdullah Ocalan, sent word through his lawyers that he had agreed with Turkish officials to set up a "peace council" aimed at ending the 27-year long conflict.
Ocalan said the council should be formed within one month, though it was unclear what form it would take.
The proposal came a month after Erdogan's AK Party won an election for a third term in power and two months after Ocalan threatened "war" unless the government entered talks.