Taliban fighters in southern Afghanistan have taken over a town that NATO forces had earlier pulled out of after establishing a peace deal with local elders.

The Associated Press reports that between 200 and 300 militants confiscated weapons from police, destroyed the government building and were roaming through the centre of Musa Qala threatening elders.

Some local residents were fleeing the town in Helmand province in fear of NATO bomb attacks on the Taliban occupants, the British Broadcasting Corporation reports.

Col. Tom Collins, a spokesperson for the NATO International Security Assistance Force, confirmed an "unknown number" of militants had entered the town.

He said there were conflicting reports that militants had taken tribal elders hostage.

British forces occupied Musa Qala until the peace deal was signed last fall and security was turned over to local leaders.

After the agreement was set down, NATO forces were prevented from entering the area, which had been a centre of clashes between British troops and the Taliban, AP reports.

The deal drew criticism from some Western officials who suggested it wasn't made with elders, but with members of the Taliban themselves. And that it forfeited NATO's ability to intervene.

Under the terms, elders said they would keep Taliban fighters out of the town centre and maintain security with their own auxiliary police force, the BBC reports.

The peace lasted for 142 days, but appears to have now come to an end.

Asadullah Wafa, the governor of Helmand province, said the militants came into the town Wednesday and disarmed the police force. They returned Thursday, Wafa said, and destroyed part of the compound housing the district's governor and police.

"People have closed down the shops this morning and those living near the area have moved out of fear," he said.

The development comes just days ahead of a planned handover of NATO command from the British to the Americans.

With files from The Associated Press