(Updates with 12 killed in clash in south)

By Robert Birsel

KABUL, April 7 (Reuters) - Afghan and U.S.-led forces have inflicted heavy casualties on insurgents in a battle, the Afghan Defence Ministry said on Monday, but a provincial official said more than 20 civilians, not rebels, had been killed.

The U.S. military and the Defence Ministry said there were no reports of civilian casualties in the battle against fighters of a pro-Taliban militant faction on Sunday in the eastern province of Nuristan near the Pakistani border.

But Rahmatullah Rashidi, head of a legislative provincial council in Nuristan, said Taliban had been in the area but had fled, and civilians were killed in U.S. bombing.

The fighting erupted during an Afghan army-led operation to clear insurgents from villages in the remote province and included air strikes by the U.S.-led force, the U.S. military said.

The Defence Ministry said one Afghan soldier had been killed while the insurgents had suffered heavy casualties.

"There was a great deal of enemy fire being taken. It was a tough fight," said U.S. military spokeswoman Lieutenant-Colonel Rumi Nielson-Green.

U.S.-led coalition troops called in aircraft which bombed positions that "contained large numbers of heavily armed insurgents", the U.S. military said, while referring questions on the casualty toll to Afghan authorities.

Insurgents supporting the Hezb-e Islami faction led by former prime minister Gulbuddin Hekmatyar, who is allied with the Taliban and al Qaeda, operated in the area, it said.

Violence has surged in Afghanistan over the past two years. More than 6,000 people were killed last year, almost a third of them civilians.

OPIUM-FIELD CLASH

Rashidi, the head of Nuristan's legislative provincial council, said Taliban had been in the area but more than 20 civilians were killed and 50 wounded in the bombing.

"Taliban were there but they had gone by the time the bombing started," Rashidi told Reuters, adding he had heard no reports of insurgent leaders being in the area.

The Defence Ministry said it had ordered authorities to investigate casualties.

Eight insurgents had been captured and eight government soldiers wounded, the ministry said.

Civilian casualties anger Afghans and are politically damaging for the Western-backed government of President Hamid Karzai. He has repeatedly called on U.S. and NATO-led forces to do everything they can to avoid killing civilians.

The Taliban and their allies have vowed to step up their violent campaign to expel foreign forces and bring down Karzai's government.

In a separate incident, Taliban attacked an Afghan anti-drugs force eradicating opium poppies in Kandahar province and seven policemen and five gunmen were killed, police in Kandahar said.

The Taliban profit from the drugs trade and have been known to help farmers protect their lucrative opium fields from eradication efforts, security officials say.

Afghanistan is the world's biggest producer of illegal opium, which is processed into heroin. (Additional reporting by Zahidullah Zahid and Jonathon Burch; Editing by Jerry Norton)

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