One civilian was also killed in the crossfire during the gun battle in Kavre district, 80 km east of the capital Kathmandu, the officer said without elaborating.

The attack came a day after the army said it killed at least 16 rebels in the west of the country. The rebels are fighting to topple the monarchy and set up a communist state in the Hindu kingdom tucked between China and India.

Nepali soldiers killed the rebels on Sunday in fighting in the west of the revolt-torn Himalayan nation, the army said.

It said a group of Maoists opened fire on a security patrol in the forests of Rupandehi district, 300 km west of Kathmandu, the capital.

"We have recovered 16 bodies of Maoist rebels. The search operation is continuing," an army officer, who declined to be named, told Reuters.

He said six soldiers and policemen were wounded in the battle, which lasted more than an hour.

There was no immediate comment from the Maoists who are fighting to overthrow the monarchy in the world's only Hindu kingdom.

Witnesses said the fighting had been heavy.

"There was heavy fighting and we could hear the sound of explosions," local journalist Sher Bahadur K.C. said from Butwal, the nearest town.

The Maoists, who want to set up a single party communist republic, have stepped up attacks on security forces since they ended a four-month truce in January after the royalist government refused to match it.

More than 13,000 people have died in the decade-old conflict that has shattered the aid and tourist dependent economy.

Sunday's fighting came hours after Nepal's army chief Pyar Jung Thapa said the army was "heading towards victory".

In the statement on the annual army day, Thapa said the Maoists were spreading a "wave of killings, violence, vandalism, kidnapping and terror in the name of people's rights".