The raid targeted the town of Gajiganna in Borno state, which has been previously hit by the Islamist extremists.
"We have lost 11 of our innocent people," said Zarami Kolo, a senior local government official.
"The terrorists also injured (several) people and set on fire every single house in the village," he said.
The raid began at sundown on Wednesday but details from the remote region, which has a poor mobile phone network, did not immediately emerge.
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One of the fleeing residents, Ibrahim Habibu, said his brother was among the 11 people killed.
"I lost my brother and as I am talking to you, I don't even know the whereabouts of my wife and two children.
"I made it to (the Borno state capital) Maiduguri after trekking through the bush overnight," Habibu added. "Many of our people are still wandering in the bush."
Gajiganna has large markets that attracts traders from across Borno state as well as from neighbouring Chad and Cameroon.
The group's five-year uprising is estimated to have killed more than 13,000 people and forced more than 1.5 million people to flee their homes.
The Islamists are believed to control more than two dozen towns and cities in the northeast, mostly in Borno.