The Taliban takeover is an embarrassment to the Afghan government and its foreign backers, and shows how vulnerable the government remains despite the presence of about 47,000 U.S. and NATO troops.
Fighting elsewhere in the country on Friday left one member of the U.S.-led military coalition and five suspected Taliban dead, the coalition said.
The militants attacked the Giro district of Ghazni province on Thursday evening, setting fire to several buildings and cutting communication lines, said provincial deputy governor Kazim Allayer.
The district mayor and four policemen, including the police chief, were killed in a battle with the militants that lasted several hours, Allayer said. Police reinforcements have been sent to the area, said Ghazni's Deputy Police Chief Mohammad Zaman.
Giro is about 110 miles (175 kilometers ) southwest of the capital, Kabul.
"Giro collapsed last night, captured by the Taliban after heavy fighting between the police and the Taliban," said Gen. Murad Ali, deputy regional corps commander of the Afghan army.
Ali said that early Friday the Afghan army sent troops from Ghazni and Paktika to assist.
NATO and the U.S.-led coalition said they were aware of the incident.
"The details are very sketchy right now. We're tracking it closely," said Maj. William Mitchell, a spokesman for the coalition.
After a winter lull, the Taliban have stepped up bombings and attacks in recent weeks.
NATO-led forces are pushing forward with their biggest-ever offensive in southern Afghanistan to root out militants in the opium-producing heartland of Helmand province.
However, few areas of the country remain free of political violence.
The coalition service member was killed during a clash with insurgents on Friday morning in the western province of Herat, a coalition statement said.
Coalition forces had engaged the militants in a gunbattle in Shindand district and called in an airstrike, the statement said.
It did not say how the unidentified service member died.
The coalition said its forces killed five suspected Taliban militants and arrested five others during an operation Friday in southeastern Zabul province.
Acting on a tip, the coalition raided a compound in Qalat district where Taliban involved in weapons smuggling and planning attacks on coalition forces were suspected to be hiding. It said it found weapons in the compound and in adjacent caves.
Meanwhile, in the eastern province of Khost, gunmen assassinated a policeman as he was driving Friday in Tani district, said provincial police chief Gen. Mohammad Ayub.
A relative in the car was also killed, and the driver was wounded, Ayub said, adding that two suspects have been arrested. It was not immediately clear if it was a personal conflict or an insurgency attack.
In southern Uruzgan, Taliban militants ambushed a police convoy patrolling late Wednesday night, and the ensuing clash left four policemen and six Taliban dead, said provincial police chief Gen. Abdul Qasim Khan.
Russia has left the list of 33 largest holders of US government bonds, after the country disposed of at least a third of remaining bonds