DOZENS of people have been killed in fierce fighting between Nigeria's military and suspected Islamists after troops raided an insurgent hideout in the northeast, a government source says.

Gun battles broke out in the remote fishing village of Baga on Friday, forcing residents to flee the town that also serves as a small trading centre on the shores of Lake Chad.

The village lies in Borno state, the home base of Boko Haram Islamists who are blamed for carrying out scores of attacks across northern and central Nigeria since 2009.

The fighting "killed dozens of people," said a state government official on Monday who refused to be named.

Borno state military spokesman Lieutenant Colonel Sagir Musa told AFP that media reports that some 180 people could have died in the clashes were "extensively inflated."

"There could have been some casualties, but it is unthinkable to say that 185 people died," Musa said.

"On my honour as an officer, nothing like that happened," he added.

Heavy damage was visible throughout the village, including signs that a massive fire had razed several homes and a market, according to an official who toured the area on Sunday with regional governor Kashim Shettima.

The official, who also requested anonymity, said local residents reported deaths among the insurgents, soldiers as well as civilians.

The Red Cross and the National Emergency Management Agency said their staff had not yet visited the area but both organisations planned to dispatch teams to the village on Monday.

"We just mobilised our volunteers. Once the security situation is clear, they will move in," Red Cross spokesman Nwakpa O. Nwakpa told AFP.

He confirmed that a significant attack occurred, but said, "we really don't know yet how many people died."

Baga is more than 150km from the state capital Maiduguri, a precarious drive on poor roads in a region hit by waves of violence.

Boko Haram has used Maiduguri as a base for its insurgency, but scores of militants have reportedly fled to more remote corners of the state following a crackdown by security forces in the city.

Nigeria's security forces have a history of minimising casualty figures in the conflict with Boko Haram, in a bid to downplay the Islamists' capacity.

But resentment of the military is high in some communities and locals have in the past given inflated death tolls while accusing the military of indiscriminately killing civilians during their operations.

Boko Haram has said it is fighting to create an Islamic state in Nigeria's mainly Muslim north, but the group's demands have shifted repeatedly.

The conflict in Africa's most populous country and top oil producer is estimated to have left about 3,000 people dead since 2009.