The authorities say the firefight took place after an operation against an "armed criminal group" and that all the dead were members of the gang.
The clash comes amid rising ethnic and regional tensions in the run-up to the end of talks on Kosovo's future status on December 10. Ethnic Albanians make up around 25 percent of Macedonia's population.
The Macedonian authorities maintain that the recent fight was part of a routine police action targeting criminals crossing the border from Kosovo.
The Interior Ministry said the operation was aimed at a group led by Lirim Jakupi, a fugitive from a Kosovo prison and a former member of the outlawed Albanian National Army. Jakupi, who goes by the nickname "the Nazi," managed to escape capture.
The Albanian National Army includes former members of the Albanian nationalist movement that spawned the separatist Kosovo Liberation Army (UCK).
In spite of the police description of the operation as an anticrime crackdown, others say it has broader implications.
Biljana Vankovska, a professor at the Institute for Defense Studies in Skopje, says that the police found more -- and more dangerous -- weapons than an ordinary criminal gang would possess. The police, Vankovska says, announced that they would need several trucks to transport the seized weapons, which include rocket-propelled grenades and other sophisticated equipment.
Vankovska also says that, while the group involved in the clash may indeed take part in criminal activities, they behave more like a guerrilla movement. Their members wear black uniforms, and last week they set up informal checkpoints on mountain roads in the area where they operate.
And Vankovska says that "the past relations between Kosovo fighters and [ethnic Albanian] Macedonian fighters are still very close."
She says the intentions of the groups remain vague, but appear to link to a power struggle within Kosovo as the ethnic-Albanian government of the province plans to declare independence from Serbia in the beginning of December.
"This is not only a fight of gaining independence for Kosovo but also for the leadership in the future state of Kosovo," Vankovska said. "So, many people, many leaders have much at stake right now. It is very much I would say an intra-Albanian conflict but not only in Macedonia but you have to take in mind a regional context as well."
Northwestern Macedonia was on the verge of a civil war in 2001, but a growing Albanian insurgency was quelled and a broader conflict averted by a broad peace-and-reforms package brokered by the West to give ethnic Albanians more rights.
But the area has remained volatile due to ethnic-Albanian hostility to the central government, and porous borders with Kosovo to the north and Albania to the west.
Skopje, keen to project an image of stability as it seeks eventual membership in both NATO and the European Union, has frequently downplayed the risk presented by armed groups in the country’s northwest.
And on November 7, Avni Arifi, a spokesman for Kosovo Prime Minister Agim Ceku, said that Kosovo authorities are interested in stability in Macedonia.
"We urge the institutions in Macedonia to protect the lives of its citizens and private property. Peace and stability in the region is very important for Kosovo and the process Kosovo is going through," Arifi said.
The same day, Kosovo police spokesman Veton Elshani said that the Kosovo police force and the NATO-led peacekeeping force in Kosovo, KFOR, have increased control of the Kosovo-Macedonian border and are acting in cooperation with Macedonian security institutions.
A key factor in avoiding further conflict in the coming weeks will be the reaction of ethnic-Albanian political parties in Macedonia, says Blagoja Kuzmanovski, the head of the Macedonian-language bureau of RFE/RL's South Slavic and Albanian Languages Service in Skopje.
"If they support these police actions, it will be good for the situation in Tetovo and Macedonia. But if they want to benefit from the situation for their own purposes, it will be bad," Kuzmanovski says.
Kuzmanovski notes that the November 7 incident is not an isolated one. Last week, another Kosovo prison fugitive was shot dead in the same region. Police denied involvement, saying Xhavid Morina was killed in a skirmish between rival criminal gangs.
(RFE/RL's South Slavic and Albanian Languages Service contributed to this report.)
Pro-independence graffiti in Prishtina (epa)
FINALLY STATUS? Sabine Freizer, director of the Crisis Group's Europe Program, told an RFE/RL briefing that deep divisions in the UN Security Council make it uncertain what form Kosovo's future status might take.
Listen to the entire briefing (about 70 minutes):
RFE/RL's coverage of Kosovo
. The website of RFE/RL's South Slavic and Albanian Language Service