6 August 2013 Last updated at 04:56 ET 
The shootout happened in La Mosquitia, a remote region on Honduras’ Atlantic coast.
The area is the main transit route for cocaine being transported from South America to the United States.
Honduras has the highest homicide rate in the world, much of it blamed on gang violence and drug traffickers.
Deputy Defence Minister Carlos Funez said one of those killed was a gang leader from neighbouring Nicaragua.
He said the body of drug lord Victor Centeno had been taken across the border by members of his gang.
Nicaraguan and Honduran gangs have been fighting for control of the sparsely populated Gracias a Dios province, from where they launch speedboats smuggling cocaine to the United States.
Mr Funez said navy and army personnel had been despatched to the area to investigate the incident and to establish the exact number of casualties and their identity.
Local authorities said the number of dead could be as high as 16, with women and children among the victims.
More than 3,000 people have been killed in Honduras in the fist six months of 2013, according to government figures.
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Honduras shootout kills at least 10
