Afghan and Nato-led forces are reported to have succeeded in driving out Taleban militants who had taken over a number of villages on the outskirts of Kandahar.

Hundreds of insurgents are said to have been killed or wounded in the operation in the Arghandab valley - many of them Pakistani insurgents who had crossed the border from that country's lawless tribal regions to stir up trouble in eastern Afghanistan, according to an Afghan provincial governor.

He added that the Afghan National Army and Canadian Nato troops were now engaged in a clean-up operation, searching the area for militants who could be hiding in villagers’ houses. Nato has yet to confirm the report or the casualty figures.

“The Taleban have been cleared totally from Arghandab district,” Assadullah Khalid, the Kandahar provincial governor, asserted at a news conference in Kandahar.

“They have suffered hundreds of dead and wounded, the wounded are captured. Many of their casualties are Pakistanis.”

In one of the biggest battles in Afghanistan in recent years, about 800 Afghan government troops, backed by several hundred mainly Canadian Nato soldiers, are fighting to clear out an estimated 600 Taleban insurgents who seized seven villages in the district on Monday.

The militants moved into the Arghandab valley three days after a suicide bombing operation blew open Kandahar's main jail, freeing hundreds of their comrades. Many of the fighters who then flooded into the valley are thought to have been freed prisoners.

The counter-assault began at 8am yesterday, as Nato helicopter gunships and troops blasted Taleban positions. The airstrikes continued overnight, and this morning Nato and Afghan forces were still attacking militants dug in around the district of orchards and farms on the outskirts of the city.

Nato says it expects the whole operation to last until the weekend. Nato spokesmen have said they cannot yet confirm Afghan government accounts that dozens of militants had been killed, and that there are no precise casualty figures.

Yesterday, Major-General Marc Lessard, commander of Nato forces in southern Afghanistan, admitted that the infiltration of Arghandab by hundreds of Taleban militants had been a tactical success for the insurgents and a setback for Nato.

“There are setbacks ... the prison breakout and the Arghandab operation, and there will be setbacks in the future,” Major-General Lessard said in an interview.

“They’ve definitely managed to achieve some kind of tactical success, there’s no doubt there,” he said.

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