A local Taliban commander and 50 fighters have been killed in overnight fighting in Sangin in Helmand province, the Afghan interior ministry says.
Government forces have been trying to recapture the area from the Taliban, who say they control the district, the BBC reported on Thursday.
Afghan officials say they have retaken key buildings in a counter-attack, and the US has carried out air strikes.
The ministry named the dead commander as Mullah Nasir, a confidant of Taliban leader Mullah Akhtar Mansour.
Strategically located, and a centre for opium production, Sangin would be a significant gain for the Taliban.
Fighting around the town escalated this week and by Wednesday the militants said they had captured all of Sangin, pinning down government troops in an army barracks.
This was denied by the Afghan defence ministry, who said fighting was continuing and that reinforcements had been sent.