The Boko Haram gunmen surrounded the village of Izge, near the border with Cameroon, spraying it with bullets, setting off explosions and burning down dozens of houses, they said.
"As I am talking to you now, all the dead bodies of the victims are still lying in the streets," resident Abubakar Usman told Reuters by telephone. "We fled without burying them, fearing the terrorists were still lurking in the bushes."
Borno state Police Commissioner Lawal Tanko confirmed the attack but said he had no details of casualties. Another witness, Lawan Madu, said hundreds of residents had fled.
President Goodluck Jonathan ordered extra troops into northeast Nigeria in May to try to crush the insurgents, who want to carve a breakaway Islamic state out of largely Muslim northern Nigeria, where they have killed thousands of people.
But the Islamists simply retreated into the remote, hilly Gwoza area bordering Cameroon, from where they have continued to mount deadly attacks that increasingly target civilians.
Jonathan faces an election in a year's time, and the persistence of Boko Haram's 4-1/2-year-old insurgency despite an costly military operation against it remains a major headache.
Last week, Boko Haram fighters in trucks painted in military colors killed 51 people in an attack on the Konduga local government area.