Helmand Governor Asadullah Wafa said police in Musa Qala had been disarmed and the district administrative building had been abandoned.
Interior Ministry spokesman Zemarai Bashary said the district was "not completely in the hands of the Taliban," but was in danger of falling.
NATO spokesman Colonel Tom Collins said an "unknown number" of fighters had entered Musa Qala and might be holding tribal elders hostage.
The Taliban seized the same area last year, prompting fierce fighting with British forces in the region.
British troops and local Afghan officials reached an agreement with Musa Qala elders last year that the town would not allow the Taliban back into the area in exchange for the withdrawal of British troops.
Meanwhile earlier today, Aghan police said they killed at least 12 suspected militants in clashes in western Farah Province.
And U.S.-led coalition forces said they killed up to seven suspected militants after calling in air strikes in southeastern Paktika Province.
(AP, AFP, dpa)