Army spokesmen say Sudanese troops are in the town of Muhajiriya and are pursuing fighters from the rebel Justice and Equality Movement (JEM).
Peacekeepers from the joint United Nations-African Union mission say they heard shooting throughout the day.
A JEM spokesman says the rebels have withdrawn a long distance from the town, following three days of government airstrikes.
The battle for control of the town has been intense since mid-January, and the United Nations estimates that 30 civilians have been killed.
The peacekeepers have stayed in the area despite a Sudanese government request that they leave.
Marie Okabe, a U.N. spokeswoman in New York, says Wednesday's fighting led hundreds of civilians to seek safety at the peacekeepers' local camp and nearby camps for displaced persons.
The JEM had seized Muhajiriya back in January from the only Darfur rebel group to have signed a peace deal with Sudan's government.
The U.N. says more than 200,000 people have been killed in Darfur during the past six years, since rebels began an uprising against the Sudanese government. Sudan says the death toll is much lower - about 10,000.
Prosecutors at the International Criminal Court accuse President Omar al-Bashir of orchestrating a genocide, and they have asked (ICC) judges to issue a warrant for his arrest. Sudan has said it will not cooperate with the international court.
Some information for this report was provided by AFP and Reuters.