"The Islamic State of Iraq and the Levant (ISIS) released 300 Kurds who had been taken prisoner overnight and this morning, in exchange for captured (jihadist) commander Abu Musab," said the Syrian Observatory for Human Rights.
Imprisoned by Kurdish fighters late yesterday, Abu Musab was reportedly released today.
But tension in Tal Abyad was still palpable even after the prisoners' release, an activist said.
"Things are calm right now, but I think we'll see new clashes by nightfall. Kurdish fighters have deployed snipers," the activist told AFP by phone on condition of anonymity.
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"We've lived through a small civil war over the past few hours," said the activist, who asked not to be named for security reasons.
"After Abu Musab was detained, ISIS deployed a large number of snipers and fighters. There have been clashes since last night, and unfortunately there were abuses by all sides," said the activist.
"Many families fled the violence. Tal Abyad is a ghost city. There is now an ethnic-based hatred against the Kurds, though the truth is Kurds and Arabs, Christians and Muslims have always lived here together," he added.
According to Nasser al-Hajj Mansour, a Kurdish official, the Kurds were imprisoned "on the basis of ethnicity".
"What is clear is that there is a will to sow strife," Mansour told AFP by telephone, adding that the violence is likely to escalate.
Kurdish regions have been run by local Kurdish councils since President Bashar al-Assad's forces withdrew from the areas in mid-2012. The Kurds have walked a fine line, trying to avoid antagonising either the regime or the rebels.
Kurds represent about 15 per cent of the Syrian population.