Officials, quoting preliminary information reaching the state capital here, said body of one Maoist has been recovered so far.
The incident occurred after joint forces, including CRPF and state police, ambushed the Naxal squad in the jungles of Bishanpur.
"The gunfire is still on," they said.
Central Reserve Police Force Inspector General (IG) Rakesh Mishra is leading the operations while Jharkhand DGP DK Pandey is camping in the district.
The forces, officials said, have recovered a US-made rifle, 200 rounds of bullets, grenades and ammunition wire from the encounter spot.