In addition to the U.S. casualties, at least six Afghan soldiers were killed and several of their vehicles were captured. The Taliban are claiming that 25 police – including a district police chief – have surrendered.
The fighting took place near Wanat where a U.S. outpost was nearly overrun by a Taliban attack about a year ago. Nine U.S. soldiers were killed in that attack, which was up until then the bloodiest battle of the war for American soldiers.
The U.S. outpost was reportedly just days from being closed as part of U.S. Gen. Stanley McChrystal's strategy to shift troops away from remote locations that are difficult to defend and move them to populated areas to focus on protecting Afghan civilians.
McChrystal has also said more resources are needed for that strategy to succeed, asking Obama to send 40,000 more troops to reinforce the 60,000 already deployed to Afghanistan.
Some of Obama's advisers oppose a major troop increase and have suggested the U.S. focus on going after al-Qaeda figures across the border in Pakistan. The president and his National Security Council will convene a second meeting on Afghanistan strategy this week.
Among the questions at the heart of the strategy discussions is whether "nation building" in Afghanistan – including achieving political stability throughout the country – makes sense if it's not clear that the nation can be built.
Recent Afghan national elections were not as successful as many Obama administration officials had hoped, with widespread reports of fraud and corruption. The results have caused some administration officials to suggest a narrower focus for U.S. strategy may be needed. An audit of disputed Afghan ballots is expected to begin today with final results announced as early as Friday.
In an interview with ABC News' Diane Sawyer on "Good Morning America" today, former deputy head of the U.N. Mission in Afghanistan Peter Galbraith characterized the Afghan election as "massive fraud" that was "preventable" by U.N. watchdogs.
The U.N. "did not exercise its responsibility," he said. Galbraith was recently fired from his post. He was the highest American member of the U.N. mission.
When asked if he had reservations about his outspokenness in the wake of his firing, Galbraith told Sawyer, "No, no second thoughts."
Galbraith has also warned against sending more U.S. troops to Afghanistan saying "in the absence of having a credible Afghan partner – that is to say a government that enjoys the support of the people and is accepted by the people" – relying on U.S. forces to achieve peace and stability there is a difficult prospect.
"It makes no sense to ramp up [troops]," he said. "But on the other hand, we cannot afford to pull out. …The only way this works is if we make a transition to the Afghans, and that requires an effective Afghan government, and that requires a credible election."
ABC News' Martha Raddatz and Jim Sciutto contributed to this report