Boko Haram Islamist militants have attacked the capital of Gombe State, Gombe, residents say.
Fighters overran a checkpoint on the edge of the city and explosions and gunfire could be heard, witnesses added.
Nigerian troops, backed by a fighter jet, were said to be trying to drive the militants back.
Nigeria has postponed elections due to be held on Saturday (today) amid concerns over the insurgency in the North East.
Gombe has previously suffered suicide attacks but correspondents say this is the first time Boko Haram has launched a direct assault on the city.
Reports said militants first attacked the town of Dadin Kowa, about 40km (25 miles) from Gombe.
Ground troops with air support then battled to keep the insurgents from entering the city.
The BBC’s Abullahi Kaura in Abuja says residents have fled into the bush and into nearby hills.
Boko Haram controls a swathe of territory in north eastern Nigeria.
Its insurgency has become a regional crisis with the four affected countries – Nigeria, Niger, Chad and Cameroon – agreeing to form a regional military force to try to contain the threat.
In response, the insurgents have stepped up their attacks in Nigeria and neighbouring states.
It emerged on Friday that Boko Haram had attacked Chad for the first time, crossing Lake Chad in four motorboats and raiding a village overnight.
Security sources and witness said five people were killed by Boko Haram in the village of Ngouboua, including a local chief, a police officer and three civilians.
The Chadian military said two of the attackers were also killed.
Some reports put the civilian death toll higher.
Villagers said around 30 militants took part in the attack, setting fire to two-thirds of homes.
Boko Haram, which wants to create an Islamic caliphate in Nigeria, has killed thousands and forced millions to flee their homes in North East Nigeria since 2009.