The fighting, which lasted for more than hour and involved exchanges of heavy artillery fire, took place in and around Las Ano, a town near the Ethiopian border claimed by both Puntland and Somaliland.
A Puntland military commander on the frontline said Somaliland forces had started the hostilities.
"They have attacked our bases today, using heavy weapons and we are still in defensive positions in the Las Anod area," Ahmed Bile told AFP by phone.
"I can't tell you the exact number of people killed in fighting today but I'm sure that more than 10 people were killed," he added.
Speaking from Hargeysa, which has been designated the capital of the self-declared republic of Somaliland, a military commander from the opposing side said his forces had taken control of the town.
"Our forces are winning this war, we have the upper hand. Puntland forces have been provoking Somaliland for a long time but this time they lost. Our forces are now controlling Las Ano," Abdi Jamal told AFP.
"We are getting information that they are reinforcing but we are ready to defeat them," he added.
A local tribal elder said at least nine people were killed in the fighting and several others wounded.
"So far we have seen nine dead bodies inside the town. They are from both sides," said Hashi Omar Diriye, an elder from Las Ano whose clan is not involved in the fighting.
"We have also been told that three other bodies are lying on the outskirts of the town. Several other injured people were brought in," he added.
A relative calm had returned to the disputed town by the end of the afternoon but sporadic artillery fire could still be heard, according to witnesses.
"Now one side is inside the town and the other is outside. They are regrouping and we fear the fighting might continue," he told AFP.
The elder added that he and other elders in Las Ano had set up a committee to protect civilians inside the town.
In a statement, Paris-based Reporters Without Borders (RSF) called on Somaliland to release reporter Ahmed Aadan Dhere, a correspondent of privately-owned Haatuf newspaper, who was arrested four days ago in Berbera township.
"The Somaliland authorities have a tendency to arrest journalists whenever they think it is in their interest, but if media issues are involved, this constitutes a serious violation of democratic standards," RSF said in a statement.
"In this particular case, Dhere is the victim of a conflict between a local politician and the central government. He obviously must be freed at once," the statement said.
Somaliland broke away from greater Somalia in 1991, months after the overthrow of former dictator Mohamed Siad Barre. It has since enjoyed relative prosperity but failed to secure recognition as an independent state.
Neighbouring Puntland declared itself autonomous from the rest of Somalia in August 1998 under the leadership of Abdullahi Yusuf Ahmed, the current president of the Somali interim government.
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