Police said the fighting broke out when they tried to intercept a group of suspected guerrillas late Monday in eastern Jharkand state, a rebel stronghold.
"They started firing when we tried to stop them," said Hemant Toppo, deputy inspector general of police in Palamu where the incident occurred.
Read: Rebels kill at least 17 troops in northeast India
"We retaliated and 12 Naxals were killed in the exchange that lasted for almost an hour," he told AFP, using a local term for the Maoist rebels.
India's long-running Maoist insurgency began in the 1960s and has cost thousands of lives.
The rebels, described by former prime minister Manmohan Singh as India's most serious internal security threat, say they are fighting authorities for land, jobs and other rights for poor tribal groups.
They are believed to be present in at least 20 Indian states but are most active in forested, resource-rich areas in the states of Chhattisgarh, Orissa, Bihar, Jharkhand and Maharashtra.
Read: India rebels kill one hostage, release 250 others: police
"We have recovered some weapons and bags they were carrying with them," Toppo told AFP from Palamu, which is around 120 miles northwest of the state capital Ranchi.
"Some rebels also managed to escape into the nearby forest areas and our teams are now looking for them."
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