News of the fighting came a day after the government said elusive Taliban leader Mullah Omar had died in Pakistan more than two years ago.
Officials in Helmand said the Taliban has Nowzad district on Wednesday after two days of fighting.
“Right now our security forces are still on the outskirts of the district and fighting with the Taliban,” said provincial police chief spokesman Obaidullah Obaid.
Obaid declined to comment on casualties.
The Taliban confirmed the capture of the district center, saying weapons and ammunition had been seized.
Helmand has been a Taliban stronghold and center of opium production for years.
British and U.S. troops began a concerted effort to secure the province in 2006 and some of the heaviest fighting of the war took place over subsequent years in small towns like Nowzad, most of them in the fertile Helmand river valley.
Meanwhile, the Afghan government is trying to get peace talks going but little progress has been made in initial meetings.