Two American CH-47 helicopters were damaged during 11 hours of fighting Tuesday at a rebel "safe haven," a US military statement said.
One made an emergency landing before it was repaired, while the other managed to fly back to a nearby coalition base.
US military spokesman Lt. Col. Jerry O'Hara said about 40 rebels had been killed, but Gen. Salim Khan, commander of about 400 Afghan policemen who also took part in the fighting, said his men had recovered the bodies of 60 suspected insurgents.
Some 30 militants were captured, including eight who were wounded, he said.
Khan said that in addition to the five slain Afghan police officers, three were injured in the gunbattle on the border between the southern provinces of Kandahar and Zabul.
"There are hundreds of Taliban in camps in the mountains. My officers have been spotting them and then the information is used by the American aircraft to bomb them," Khan said. "Many of the rebels have started to flee the area."
The military statement said, "Coalition warplanes and attack helicopters were hammering enemy positions throughout the evening."
Suspected Taliban rebels also attacked Afghan soldiers in the neighboring
US military spokesman O'Hara said the operation in the rebel "safe haven" was continuing Wednesday.
"We are not letting up on the enemy and will continue to pursue them until the fighting stops," he said.
Pak blamed for Afghan violence
Three months of bloodshed across the south and east has left hundreds dead and sparked fears that the Afghan war is widening, rather than winding down. US and Afghan officials warn things could get worse ahead of landmark parliamentary elections scheduled for September.
More than 340 suspected rebels and 29 US troops have been killed since March, according to Afghan and US officials. More than three dozen Afghan police and soldiers also have died, as have more than 100 civilians.
Senior Afghan and US officials have warned that foreign militants backed up by networks channeling them money and arms had come into Afghanistan to try to subvert the legislative elections.
(Associated Press writer Noor Khan contributed to this report from Kandahar.)