Heavy battles broke out on Monday in the eastern Liberian town of Gbein, about 350 kilometers east of the Liberian capital Monrovia, according to a report reaching from Monrovia.
"We have sent reinforcements to the town, which has since Sunday been under the control of LURD (The Liberians United for Reconciliation and Democracy) rebel group, the report quoted a defense source as saying.
The rebels were operating out of Liberia's eastern neighboring country of Cote d'Ivoire where a four-month war has already left a large number of civilians dead and many others homeless.
Liberian President Charles Taylor's private radio station Monday cryptically announced the offensive on Gbein, saying that the fighting is "serious".
At least one person was killed and several others wounded in the fighting the radio said.
According to the radio, the government will take appropriate measures to expel the terrorists.
The Liberian government viewed the attack "as a blatant violation of its territorial integrity," said the radio.
President Charles Taylor's troops have since 1999 been fighting the armed dissidents in the north, who have been waging an insurrection in northern Liberia for more than two years.
The fighting is part of a wider conflict involving Liberia, Guinea and Sierra Leone for control of diamonds, timber and other resources in the region.