Eleven Pakistani soldiers were killed including two who were beheaded after being captured during fighting with Islamist militants in North Waziristan, officials said on Monday.
Gunmen armed with rockets attacked a military convoy on Sunday, sparking gun battles near Miranshah, the main town in North Waziristan -- an Al-Qaeda and Taliban stronghold on Pakistan's border with Afghanistan.
The military said nine soldiers were killed in the clashes over several hours and claimed that "heavy casualties" were inflicted on the militants.
The heads of two other soldiers were later found dumped without their bodies -- one hanging from a barbed wire fence in the neighbourhood of Makane Bagh and the other in Zafar Town, local officials said.
Three worshippers were also killed and 15 wounded when a shell hit a mosque near Miranshah on Sunday, security officials and residents told AFP.
On Monday, army helicopters shelled suspected militant hideouts in the suburb of Tatta Khel and an indefinite curfew continued into a second day, officials and local residents said.
Helicopter gunships bombarded a three-storey building known to contain weapons shops in Miranshah's main bazaar, causing a huge fire, witnesses said.
The building in Noor Din arms market was hit several times by shells from the helicopters, an eyewitness told AFP requesting anonymity.
"I can see a huge fire and can hear the explosions, I do not know whether people are trapped inside or not, it's already curfew here," he said.
An AFP reporter and dozens of other tribesmen witnessed the bodies of children lying on the ground after the explosions. An official later said two children, aged five and 10, were killed and six others injured.
A few hours on two tribesmen were killed and 15 others were wounded as they tried to salvage weapons from the gutted shops, the official said.
Gunbattles between soldiers and militants are relatively rare in Miranshah.
Pakistan has resisted US pressure to launch a full-scale operation against Al-Qaeda and the Taliban in North Waziristan, where they are instead frequently targeted by US drone strikes.
The most recent, on Saturday, killed at least 10 militants according to officials.
Pakistani-US relations have been in crisis for much of the past year and Islamabad has made increasingly vocal public denunciations of the drone strikes, despite having given initial tacit approval.
The fighting in Miranshah followed the murder last week of a senior Muslim cleric, Maulana Naseeb Khan, who taught at a madrassa near the northwestern city of Peshawar where several Taliban leaders studied.
The cleric, who came from North Waziristan, was kidnapped near Peshawar and found dead on Thursday. After his funeral, the Taliban distributed a pamphlet blaming the Pakistani army and vowing to avenge his killing.