Government officials in Paraguay say seven police officers and at least nine landless farmers have died in clashes.
A police spokesman said the officers were shot dead when they tried to evict landless protesters who had occupied a property in the east of Paraguay.
The interior minister and chief of police have resigned over the incident.
The owner of the land in Canindeyu province said about 100 families had invaded his property three weeks ago; it is not clear how many remain.
Local doctors say dozens more police and farmers have been injured.
The farmers said the land was illegally taken during the 1954-1989 military rule of Gen Alfredo Stroessner and distributed among his allies.
"The police entered, trying to evacuate the place, to get the people out, and then there were shots at the police. From that point on, there were clashes," Interior Minister Carlos Filizzola told reporters before handing in his resignation. Police chief Paulino Rojas also stepped down.
According to police official Walter Gomez, the officers were ambushed in a wooded area.
He said they had not been expecting violence and had wanted to negotiate a "peaceful eviction".
Landless leader Jose Rodriguez told Paraguayan radio that those killed "were humble farmers, members of the landless movement, who'd decided to stay and resist".
Paraguayan President Fernando Lugo has ordered the military to intervene.
"All the forces are working towards re-establishing calm and security to the area," he said during a news conference.
The Paraguayan Congress and the Senate have convened an extraordinary session to decide whether to declare a state of emergency in the region.