Many people are feared dead after an Islamist militant attack on the northeast Nigerian town of Gudumbali, two residents and a vigilante said on Saturday.

The Nigerian government in June ordered thousands of people who fled the decade-long war with Boko Haram to return to Gudumbali, one of the most dangerous areas of northeast Nigeria. Officials cut off food and other aid to those who refused.

There is mounting pressure to show progress in the war against Islamist groups ahead of a presidential election, according to sources familiar with the situation.

The militants struck Gudumbali in the Guzamala region of Borno state on Friday, wearing military uniforms and firing upon Nigerian soldiers and residents, sending both the troops and the civilians fleeing, the witnesses said.

The Nigerian military did not immediately respond to request for comment.

"Many civilians lost their lives, we don't have casualty figures for now," said Mohammed, one of the residents, whose first name is being used because the military threatens reprisals against those who speak to media.

"Thousand of people fled their homes."

The vigilante, Baba Ali Musa, said the militants came on motorbikes and in pick-up trucks mounted with anti-aircraft guns, while others fired rocket-propelled grenades on the town.

"They came towards the town shooting sporadically," he said. "They were saying if you know you're an innocent person just leave the town, our target is not you, or if you wish to stay with us, it's no matter, you can stay with us."

Nigeria's northeast is home to two Islamist insurgencies: Boko Haram and its breakaway group, Islamic State in West Africa (ISWA), now considered by security experts the stronger of the two.

ISWA had in recent months embarked on a hearts and minds campaign to win the support of the local population and create an economy the group could tax to fund its insurgency.

Gudumbali lies in territory where ISWA has greater influence.