The soldiers had earlier repelled the attack on the town but the insurgents returned hours later and overpowered them.
Hundreds of people have been trapped in the ancient town of Dikwa in Borno State after Boko Haram fighters dislodged Nigerian troops in the community.
Dikwa town is about 90km from Maiduguri, the Borno State capital and has experienced several attacks from the insurgents since the liberation of the town in 2016.
Military sources told SaharaReporters that the insurgents overran Dikwa on Monday and while most of the villagers ran away for safety, some were held by the insurgents.
SaharaReporters gathered that the gunmen came with heavy machine guns and trucks and took possession of the military Super Camp 9 formation, including high-profile fighting equipment and vehicles.
A source said the soldiers had earlier repelled the attack on the town but the insurgents returned hours later and overpowered them.
The gunmen also attacked a UN base and overran a humanitarian hub in the town, trapping 25 aid workers[story_link align="left"]90898[/story_link]
One of the sources said the insurgents are roaming the streets and preaching to locals not to flee the town.
The latest attack comes few days after Ibrahim Attahiru, the Chief of Army Staff, gave soldiers at the front 48 hours to recapture all towns and other enclaves held by the insurgents.
“Areas around Marte, Chikingudu, Wulgo, Kirenowa, and Kirta must be cleared in the next 48 hours. You must not let this nation down. Go back and do the needful and I will be right behind you.
“You should rest assured of all the support you require in this very onerous task. You are aware of the recent attack on Dikwa and Marte, you should not allow this to happen again; go after them and clear these bastards,” he had said.
Boko Haram and its offshoot, Islamic State West Africa Province, have become more ferocious in recent times.
The Nigerian Army has repeatedly claimed that the insurgency had been largely defeated and frequently underplays any losses.
The terror group has caused over 40,000 deaths and displaced millions of individuals mainly in Adamawa, Borno, and Yobe states.