Fighting in Chatra district started on Wednesday night, police said. Ten bodies have been recovered so far from the spot.
Maoist rebels are active in more than a third of India's 600-odd districts.
They say they are fighting for the rights of the poor peasants and labourers.
Prime Minister Manmohan Singh has described them as the biggest internal security challenge facing India.
Jharkhand police chief Rajeev Kumar said that bodies of five rebels had been identified so far.
"Those identified are some of the top local leaders. This is a big jolt for the Maoists," he said.
Many Maoist commanders have parted ways with the main rebel organisation to float rival groups in the region, says the BBC's Salman Ravi.
There are many such groups active in Jharkhand and neighbouring Chhattisgarh state.
The rebels have accused these commanders of siphoning off money collected from mining industries and local contractors as illegal taxes.
Rival rebels groups have often clashed in Jharkhand - and the police been often accused of backing some groups, our correspondent says.
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