The military has reportedly deployed fighter jets and ground forces in pursuit of the gunmen, presumed to be from the Boko Haram group, who have killed thousands in the region during a four-year uprising.
"There was an attack on the military barracks in (the town) of Bama this morning," said Mohammed Dole, the army spokesperson in Borno state, which is the epicentre of the Boko Haram conflict.
He declined to comment on the details provided by several Bama residents who said “hundreds” of insurgents swarmed the barracks in a convoy of trucks, armed with assault rifles, explosives and rocket-propelled-grenades.
"It started at around three in the morning with huge explosions and the cracking of gunfire," said Bama resident Abdullahi Idris. "Later we saw plumes of smoke and fire from the barracks," he added.
Bama has become a flashpoint in the insurgency and the scene of several bold militant attacks. One of the militant rebels' largest-ever strikes targeted the military in Bama in June.
According to Idris and other residents, military jets flew over the town after the attack.
"A large section of the barracks" had been destroyed by fire, said another resident who asked for anonymity but identified himself as a member of the vigilante force which has formed in Borno to fight the militants.
He told reporters that fighter jets dropped bombs on the attackers, forcing them to flee.
Residents and Dole offered no estimates of casualties.
Borno and two other parts of Nigeria's northeast were placed under a state of emergency in May.
The military operation launched in the region to tackle the uprising has entered its eighth month but its effectiveness has been widely questioned.
Defence officials have claimed Boko Haram is now only capable of attacking soft targets, but Friday's raid in Bama, which came after the December 2 assault on the army and air force in Maiduguri, indicates the insurgents are still capable of daring offensives.
The UN has said that more than 1,200 people have been killed in the northeast in Boko Haram attacks since May, excluding insurgents killed during military operations.
Boko Haram, declared a foreign terrorist group by the United States, has said it is fighting to create an Islamic state in Nigeria.
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