The far-left rebels in the central state of Chhattisgarh are part of a long-standing conflict that has left tens of thousands dead since the 1960s.
They were in a camp in a dense forest in Rajnandgaon district, some 70 kilometres (43 miles) from the state capital Raipur.
"So far seven bodies have been recovered from the encounter spot," a senior police officer in the district said.
He said arms and ammunition were recovered from the camp.
Indian soldiers wounded in bomb attack
Chhattisgarh is mineral-rich but among India's poorest states, and guerrillas are demanding greater rights over land and resources.
A landmine blast on Wednesday was blamed on the rebels and killed one paramilitary.
Maoist-inspired insurgents in the so-called Naxalite movement are present in at least 20 Indian states but are most active in Maharashtra, Odisha, Jharkhand, Bihar, and Chhattisgarh.
The government has deployed tens of thousands of police and special commandos in a bid to eradicate the groups.
COMMENTS
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ