The state is bisected by religious hatred focused on the stateless Rohingya Muslim minority, who are reviled and perceived as illegal immigrants in Buddhist-majority Myanmar.
The office of de-facto leader Aung San Suu Kyi said 12 security officials had been killed alongside 77 militants -- the highest declared single day toll since fighting broke out last year.
Friday's fighting exploded around Rathedaung township which has seen a heavy build-up of Myanmar troops in recent weeks, with reports filtering out of killings by shadowy groups, army-blockaded villages and abuses.
"The military and police members are fighting back together against extremist Bengali terrorists," Commander-in- Chief Min Aung Hlaing said in a statement on Facebook, using the state's description for Rohingya militants.
One resident in Maungdaw, the main town in northern Rakhine, said gunfire could be heard throughout the night.
"We are still hearing gunshots now, we dare not to go out from our house," the resident said by phone, asking not to be named.
Despite years of persecution, the Rohingya largely eschewed violence.
But a previously unknown militant group emerged as a force last October under the banner of the Arakan Rohingya Salvation Army (ARSA), which claims to be leading an insurgency based in the remote May Yu mountain range bordering Bangladesh.
A Twitter account (@ARSA_Official) which purports to represent the group confirmed its fighters were engaging Myanmar's military in the area and accused the soldiers of carrying out atrocities in recent weeks.
Myanmar says the group is headed by Rohingya jihadists who were trained abroad but it is unclear how large the network is.
Friday's violence pushed new waves of Rohingya to flee towards Bangladesh.
But border guards there said they would not be allowed to cross.
"More than a thousand of Rohingya women along with children and cattle have gathered near the land border between Myanmar and Bangladesh since this morning," Manjurul Hasan Khan, commander of Ukhiya town's border guards, told AFP.
The flare-up came just hours after former UN chief Kofi Annan released a milestone report detailing conditions inside Rakhine and offering ways to heal the festering sectarian tensions there.
In a statement Annan said he was "gravely concerned" by the latest outbreak of fighting.
"The alleged scale and gravity of these attacks mark a worrying escalation of violence," he said.
The UN's top official in Myanmar, Renata Lok-Dessallien, called on all sides to "refrain from violence, protect civilians (and) restore law and order".
The wedge of Rakhine closest to Bangladesh has been in lockdown since October 2016.
Deadly attacks by the militants on border police sparked a military response that left scores dead and forced some 87,000 people to flee to Bangladesh.
But the army and Aung San Suu Kyi's civilian government vehemently deny allegations of widespread abuses, including rapes and murders.
They have so far refused to grant visas to UN investigators tasked with probing the allegations.
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