Canadian and Afghan troops killed five Taliban militants in fierce clashes around an opium-rich southern village on Saturday, the military said.
Two Canadian soldiers were also wounded, while a separate roadside bombing claimed the first life of a Peruvian soldier in Afghanistan.
Fighting broke out in southern Kandahar province's Panjwayi district and raged into the evening after coalition troops moved into the region to hunt Taliban forces, said coalition spokeswoman Capt Julie Roberge.
Remnants of the toppled Taliban regime have established a "stronghold" in Panjwayi, Roberge said. Eyewitnesses said bands of armed insurgents travel around the district on motorcycles.
Military commanders on the ground estimated that five militants were killed and one wounded, while another four were detained, Roberge said.
Two Canadian troops were also wounded, including one seriously who was evacuated to a coalition military facility in Germany for treatment, said Canadian spokesman Maj Marc Theriault. An Afghan soldier was also wounded.
Panjwayi is an agricultural area where about 70 percent of farms cultivate opium poppies. Afghanistan provides 90 percent of the world's supply, and Taliban extremists are believed to use harvest proceeds to fund their insurgency.
Tribal elder Haji Zainuddin Khan, from the Pashor area of Panjwayi, said fighting has raged in the district for two months, forcing many villagers to flee to other towns and villages for their own safety.