A patrol team of 40 policemen was conducting a security drill Thursday in Gadchiroli, in northeast Maharashtra state, when the rebels attacked the state's chief secretary Johny Joseph said.
About 300 rebels surrounded the patrol team, opening fire and leaving at least 17 dead before fleeing into neighboring Chattisgarh state, he said.
Security forces combed the forests near Gadchiroli, more than 600 miles (1,000 kilometers) southeast of New Delhi, in search of the rebels, Joseph said. Additional troops were also sent to the region, which is considered a rebel stronghold.
It was not immediately known if any of the insurgents were killed or wounded. Rebels usually retrieve the bodies of their comrades.
The attack came a day after India's home minister Palaniappan Chidambaram ordered the rebels to lay down their arms and begin negotiations with the government.
The rebels, who say they are inspired by Chinese revolutionary leader Mao Zedong, have been fighting for more than three decades in several Indian states, demanding land and jobs for agricultural laborers and the poor. They frequently target police and government officials, whom they accuse of colluding with landlords and rich farmers to exploit the poor.
Thousands of people _ including police, militants and civilians _ have died in the violence in recent years.
According to government figures, about 250 police and paramilitary soldiers have been killed by the rebels between January and August this year.