Police ambushed a large group of heavily armed Maoists near the border of Chhattisgarh and Telangana states early Tuesday morning, triggering the fierce gunfight.
"We have reports eight Maoists are dead but the gunfight is still going on and we are yet to recover the bodies," D. Shravan Kumar, police chief of Chhattisgarh's Sukma district close to where the attack occurred, told AFP.
Chhattisgarh and Telangana police launched the joint operation after receiving a tip-off about rebel movements through dense forest, a route they often use to cross the state border.
India's Maoist insurgency began in the 1960s, inspired by Chinese revolutionary leader Mao Zedong, and has cost thousands of lives.
The rebels, described by former prime minister Manmohan Singh as India's most serious internal security threat, say they are fighting authorities for land, jobs and other rights for poor tribal groups.
The rebels operate in at least 20 Indian states but are most active in the forested, resource-rich areas of Chhattisgarh, Orissa, Bihar, Jharkhand and Maharashtra.
Government critics say attempts to end the revolt through tough security offensives are doomed to fail, and the real solution is better governance and development of the region.