The bloodshed in the remote northeastern town of Baga likely marks the single deadliest event in the insurgency being waged by Boko Haram, the radical group blamed for scores of attacks in northern and central Nigeria since 2009.
Conflicting reports have emerged of the fighting that broke out Friday, but residents and officials have said the high death toll included soldiers, insurgents as well as scores of civilians.
"So far 187 dead have been buried, while 77 are under admission in hospitals," Red Cross Spokesman Nwakpa O. Nwakpa said.
More than 300 houses in the fishing town on the shores of Lake Chad "were burnt down", he added.
Another rescue official who did not want to be named said "40 percent of the town has been gutted by fire".
The militants have used the state capital Maiduguri as their base, but scores of them have reportedly fled to more remote corners of the state following a crackdown by security forces in the city.
The conflict in Africa's most populous country and top oil producer is estimated to have left about 3,000 people dead since 2009.