Taleban insurgents attacked police headquarters and other government buildings in Ghazni in central Afghanistan on Sunday (Aug 12) and were threatening to seize control of the city, with the main highway now heavily mined, local lawmakers and residents said.
Ghazni is located on the highway linking Afghanistan's two largest cities, Kabul and Kandahar.
The US said that the city remained under government control.
The insurgents began the attack by entering homes in Ghazni and then slipping out into the night to attack security forces.
Communications with the city have been cut off, thus obscuring the situation, although at a press conference held in the capital, Army Chief of Staff Sharif Yaftali said that the strategic areas of the city were still under government control.
"The Afghan National Defense and Security Forces continue to hold their ground and maintain control of all government centers", in Ghazni, he said in a statement.
The Taliban's four-day trip to Uzbekistan, which ended Friday, was the strongest sign yet of the group's growing regional clout, while the Ghazni assault has highlighted its military prowess.
Danish said at least 25 security forces had died in the fighting along with 150 Taliban fighters.
Hostilities in Ghazni have disrupted telecommunication services, making it almost impossible to verify conflicting claims about whether the Taliban or the Afghan government controlled key buildings in the city.
The sources said on Saturday that Taliban militants have killed 16 security personnel and injured two others in an attack in the northern province of Baghlan.
"Initial reports indicate minimal Afghan security force casualties", the United States spokesman later told AFP, adding that American forces deployed attack helicopters and conducted a drone strike in the response.
It would also be the most important strategic victory for the Taliban since they lost control of the country after the 2001 US invasion.
A senior official, who spoke on condition of anonymity because he was not authorised to speak to the media, said around 80 members of the security forces, as well as an unknown number of civilians had been killed. The Taliban's presence in the area must be substantial for such an attack to even be possible.
It had supplied body bags to the provincial hospital and was ready to provide more assistance.
To hold onto the city in the fierce, daylong fighting, Afghan forces had to call in reinforcements as well as USA air power, including helicopter gunships, fighter jets and a drone strike.
Anticipation had been mounting about the possibility of a government ceasefire announcement for the Islamic holiday of Eid-al Adha later this month.
A USA -led coalition drove the Taliban from power after Al-Qaeda militants - whose leaders were being sheltered in Afghanistan - carried out the September 11, 2001, attacks on the United States.
The insurgents have also so far ignored an offer by Ghani in February of unconditional peace negotiations.