The gunfight erupted Monday night in the town of Arteaga, in troubled Michoacan state, where drug lord Servando Gomez - nicknamed "La Tuta" or "The Teacher" - is believed to be hiding.
Troops were "greeted by bullets" while carrying out a search of the area, a source in the Michoacan prosecutor's office told AFP yesterday.
The ensuing clashes resulted in the deaths of three suspected members of an organised crime group, said the source, who requested anonymity.
Located in the mountains, Arteaga is Gomez's hometown and, with its roughly 22,000 inhabitants, is considered a stronghold of his.
The Knights Templar has seen its leadership largely dismantled, with authorities having killed or captured three of its four major capos this year.
Michoacan, on Mexico's Pacific coast, is a key trafficking area in the drug trade to the United States.
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