"We took control of Pagak ... government forces are not in Pagak, we have pushed them out," Reuters quoted rebel spokesman Lam Paul Gabriel as saying on Saturday.
Pagak was captured by South Sudan's military on Monday, but rebels engaged in heavy clashes with government forces on Friday in an attempt to retake the town.
The rebels’ control of Pagak, located in the Upper Nile region, provides them with an easy route for cross-border movement and smuggling of arms and other supplies from Ethiopia.
Dickson Gatluak Jock, a spokesman for South Sudan's Vice President Taban Deng Gai, rejected that the rebels had retaken the control of the town but said three army soldiers were killed and four others wounded during the clashes.
"We clashed with them (rebels) yesterday in Pagak, but we are in full control of the area," he said.
Jock noted that fighting had died down on Saturday, but said the rebels "are not very far from our area."
He said the army killed five rebels during the Friday clashes. The rebels denied it.
The South Sudanese vice president used to be a rebel himself, but he was appointed to his current position after he defected to the government in 2016.
Gai’s former rebel forces are now part of the government military and they are fighting on the front line against forces loyal to opposition leader Riek Machar in Pagak.
Pagak has been a key element in Machar’s insurgency since he defected as the main deputy to President Salva Kiir in December 2013 over allegations of plotting a coup.
Weeks of clashes have forced thousands to flee the Upper Nile region. Tens of thousands have been killed and millions displaced in the conflict. Machar was forced into exile in South Africa but forces loyal to him still operate in Pagak and other regions of the world’s youngest country.
The war spread across South Sudan with the collapse of a peace agreement in 2015, leaving many in poverty and despair.
The United Nations says nearly six million people, around half of South Sudan’s population, are in urgent need of humanitarian assistance.