An additional 12 policemen were missing and the bodies of at least two rebels were recovered after the clash in Diktel, about 200 km southeast of Kathmandu, officials reached by telephone said.
The 63 freed detainees included suspected rebels, but it was unclear how many, the officials said.
Rebel violence has escalated since King Gyanendra seized direct control over the government in February, which he said was necessary to quell the Maoist insurgency, which has left more than 11,500 dead over nine years.
The night-time attack on Diktel followed a pledge Sunday by rebel leader Prachanda not to target civilians in his group's violent campaign to replace Nepal's government with a communist regime.
The rebels two weeks earlier killed 38 people and injured 71 in a bomb attack on a civilian bus that was widely condemned, and which the rebels later said was a mistake.
In their statement sent late Sunday to news organizations, Prachanda said his fighters had strict orders to "stop physical actions against all unarmed persons."
In Diktel, the rebels destroyed six government buildings, including the local court house and district administration office, and freed all of the town's 63 inmates -- including rebel suspects -- from a jail, said the local military and government officials reached by phone.
They spoke on condition of anonymity for fear of reprisals by the rebels.
The rebels also seized eight employees of the government's agriculture agency, which supplies farming equipment and seeds to the local farmers.
No other details of the attack were immediately available.
Rainfall was making it difficult for troops to reach the remote town. No roads link it with other districts and army helicopters were unable to land.
The rebels, who claim to be inspired by Chinese revolutionary Mao Zedong, began their violent campaign in 1996.
