The rare clashes between Pakistani troops and Taliban fighters came one day after a bomb killed three Pakistani soldiers and although military officials confirmed troops were in action, there was no sign it was the start of a major operation, long demanded by the Americans.
North Waziristan, the most infamous of Pakistan's seven tribal districts on the Afghan border, is a stronghold of the Al-Qaeda-linked Haqqani network, but Pakistan has resisted US pressure to launch a sweeping offensive in the area.
Instead witnesses said Wednesday's clashes broke out after Pakistani troops started to blow up a private hospital used by the Taliban and other militants, one day after a nearby bomb attack killed three troops and wounded another 15.
One local resident said he saw two Pakistani gunship helicopters shelling a government school, where militants were holed up, targeting soldiers.
An AFP reporter heard several blasts and saw several Taliban fighters firing on Pakistan army checkposts with automatic weapons and rocket launchers in the town of Miranshah, 300 kilometres (188 miles) southwest of Islamabad.
The market shut and the town was plunged into a blackout after Taliban militants targeted an electricity transformer, the reporter said.
"An exchange of fire is continuing. There are no casualties on our side," a military official in the main northwestern city of Peshawar told AFP.
The official confirmed that troops were dynamiting a hospital, where Taliban and other militants were being treated, close to where Tuesday's bomb struck.
"Troops are busy in blowing it up with explosives. We are doing it in parts to avoid civilian casualties," the official said.
Witnesses said the clashes began when Taliban attacked the troops and that militants were shouting "God is great". In one street, a witness said he saw six Taliban fire on Pakistani troops and saw one fighter being shot and killed.
"We cannot go out. There is heavy fighting," a witness told AFP.
The same witness said the militants were talking Uzbek and Urdu, indicating that they came from Uzbekistan and Pakistan's central province of Punjab.
Pakistan has been under huge pressure to do more to destroy militant sanctuaries, particularly in North Waziristan, since US Navy SEALs found and killed Osama bin Laden in the town of Abbottabad on May 2.
The military this week announced the start of a new operation in the tribal district of Kurram, which has been plagued by sectarian clashes between Shiite and Sunni Muslims, which local officials say has displaced 28,000 people.
But Pakistan has said any North Waziristan offensive would be of its choosing, arguing that its 140,000 troops already committed to the northwest are too overstretched fighting a homegrown insurgency to take on the Haqqanis.
Army chief of staff, General Ashfaq Kayani, a close US ally who has been under huge strain since the bin Laden raid, on Wednesday called Pakistan's commitment to the war on Al-Qaeda and its affiliates "total and unwavering".
"Pakistan firmly believes in taking stern action against all terrorist groups," he told a de-radicalisation conference in the northwestern valley of Swat, where the military expelled a Taliban insurgency two years ago.
North Waziristan is home to around 400,000 people and Miranshah 50,000. US drone strikes, which are controversial among an anti-American Pakistani public, routinely target Taliban and Al-Qaeda-linked commanders in the district.
Washington has called Pakistan's semi-autonomous northwest tribal region the most dangerous place on Earth and the global headquarters of Al-Qaeda, where Taliban and other Al-Qaeda-linked networks have established bases.