The town, Las Anod, is claimed by both Puntland, a northern state in Somalia, and Somaliland, which broke away from the rest of the country in 1991 but has not been recognised internationally.
Angry demonstrations broke out in the disputed border town last month, with opposition parties and rights groups accusing government forces of shooting dead several protesters.
The latest violence occurred hours after elders from the Sool region, where Las Anod is located, issued a statement pledging support for "the unity and integrity of the Somali Federal Republic" and urging Somaliland authorities to withdraw their forces from the area.
Somaliland's interior minister, Mohamed Kahin Ahmed, blamed militias allied with the elders for the violence, accusing them of attacking army camps.
"Around 5:30 early this morning, forces armed with... mortars and rocket-propelled grenades attacked some of the camps of the national armed forces," Ahmed told reporters.
"The attackers involved in the fighting are forces who have been organised by the traditional elders," he added.
Elders told AFP that civilians had died in the ensuing violence.
"We have confirmed the death of 13 people including six civilians, children among them," one elder, Mohamed Sheik Adan, told AFP by phone.
"It is sad that the Somaliland forces are using heavy weaponry and are shelling the town."
Another elder, Hirsi Farah Magan, said that although the fighting had subsided, the atmosphere remained tense.
"More than 10 people were confirmed dead so far. I saw the dead bodies of three children and their mother who were killed after a mortar shell struck their house," he said.
- 'Dialogue and mediation' -
Somaliland's President Muse Bihi, whose administration governs from Hargeisa, around 380 kilometres (240 miles) to the west, called a cabinet meeting on Monday afternoon to assess the situation in Las Anod.
In a statement issued after the meeting, the cabinet said the government was open to "dialogue and mediation" but would not hesitate to take action "against any armed groups intending to create instability" in Las Anod.
"The National Army of the Republic of Somaliland successfully thwarted a terrorist attack on a military base today," it said, without offering further details.
"We call on all traditional elders, scholars, businessmen, women, youth... to take part in bringing peace to the city," it said.
Protests erupted in Las Anod last month after a local politician was shot dead in December, leading to clashes between demonstrators and the military.
Control of Las Anod, located along a key trade corridor, has changed hands several times in recent decades.
A former British protectorate, Somaliland prints its own currency, issues its own passports and elects its own government, but its quest for statehood has gone unrecognised, leaving it poor and isolated.
The region has been relatively stable in comparison to Somalia, but recent months have seen a surge in political unease and violent demonstrations.
In October, a decision by the council of elders to extend the president's term after elections were delayed,prompted opposition outcry, while demonstrators were killed in anti-government protests in August.
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