The alleged cross-border attack raised concerns that Liberia would enter the growing 4-month-old civil war in Ivory Coast, a step that would increase tensions in West Africa and could draw France deeper into the conflict.
The Liberian government accused Ivory Coast government troops of joining Liberian rebels in the attack and pledged to "take the appropriate measures to expel the terrorists," Taylor's KISS-FM radio station said.
KISS-FM said the fighters, coming from Ivory Coast, attacked the town of Beam in Liberia's southeast border county of Grand Gedeh on Sunday. The fighters still held the town Monday, it said.
One person was killed and several wounded in the fighting, the radio said without specifying which side suffered casualties.
"We have no elements in the area to clarify these claims," said Lt. Col. Jules Yao Yao, the Ivorian army spokesman. Liberian authorities weren't immediately available for comment.
If Liberia were to intervene in Ivory Coast, it could draw France deeper in Ivory Coast's conflict. Defense treaties obligate France's military to come to Ivory Coast's aid if its former colony is attacked from outside.
Fighters from Liberia in recent weeks have been active in the war in Ivory Coast, but all accounts have them fighting on the side of Ivory Coast's rebels, rather than the Ivory Coast government.
Taylor told reporters Friday that there were Liberians "fighting on both sides on their own" in Ivory Coast's war. He called it "unacceptable."
Ivory Coast, the world's largest cocoa producer and one of West Africa's leading economic powers, is battling a 4-month-old uprising by rebels who want President Laurent Gbagbo out, blaming him in a surge of ethnic tensions and bloodshed in that country.
West African and other international mediators are trying to broker peace, fearing Ivory Coast will be engulfed by the kind of ruthless scorched-earth fighting that has destroyed neighboring Liberia. Ivory Coast's rebel, government and political parties are now in talks in Paris.
Liberia has seen thousands killed and hundreds of thousands uprooted in a decade-plus of fighting that began with a coup attempt by Taylor in 1989. Now president, Taylor is still battling a northern-based rebellion seeking his overthrow.
Ivory Coast's government, which has sought greater assistance from France against its rebels, has claimed before that rebels have attacked from Liberia.
In Liberia, defense officials claim that militiamen allied to Ivory Coast's government came to the border at least twice last week to warn that they would attack Liberia if Liberians did not stop fighting alongside the rebels in Ivory Coast.
By Jonathan Paye-Laylh