Afghanistan government forces have lost control of the centre of the town of Sangin in Helmand province after days of fierce fighting, media reports said on Wednesday.
The Taliban controlled the local government building and police station, BBC quoted residents as saying.
Fighters have seized the entire district and their flag was flying over Sangin, the Taliban said.
The Afghan defence ministry said fighting was continuing and that reinforcements had been sent.
According to eyewitnesses, some government forces were still fighting in the district centre but are cut off.
District governor Haji Suliman Shah has said that he had been airlifted from the district headquarters to Shorabak base – formerly Camp Bastion – in Lashkar Gah early on Wednesday, along with 15 wounded security force personnel.
Sangin is a strategically placed market town in the southern Helmand province and a rich opium production centre. It was a key focus of Nato's involvement in Afghanistan.
Helmand province has been a major centre of the Taliban insurgency. Its proximity to Pakistan also gives the area a broader strategic significance.