(http://news.bbcimg.co.uk/media/images/77326000/gif/_77326435_nigeria_borno_map464(4).gif) Several security sources said Boko Haram had over-run much of Bama and there were heavy casualties on both sides, Reuters news agency reports.
About 70 militants had been killed, the Associated Press quoted security sources as saying.
On Monday, the military said on its Twitter account (https://twitter.com/DefenceInfoNG) that the air force had been used to "repel and dislodge" Boko Haram from Bama.
(http://news.bbcimg.co.uk/media/images/76880000/jpg/_76880975_76880571.jpg) Government troops are battling to defeat the well-armed insurgents The most recent census, in 2006, showed the town had a population of about 270,000.
An overnight curfew has been imposed in Maiduguri to prevent "infiltration" by militants, it added.
Boko Haram's five-year insurgency has intensified in recent months despite the deployment of thousands of extra troops to the worst-affected areas.
In April, the militants captured more than 200 girls from a boarding school in the town of Chibok, also in Borno state.
Countries such as China, France, the UK and US have sent military assistance to help find the girls but they have not yet been rescued.
Source: BBC