One resident said the violence seemed to have started with a large number of attackers from extremist group Boko Haram opening fire on a military checkpoint and throwing explosives, leading to gun battles.
“There has been a series of explosions and shootings all over the town for more than two hours,” another resident said.
“It all started around 5:30 pm. Everybody is indoors. It is now quiet all over the town except for sporadic shootings.”
Heavy explosions and gunfire had also rocked Potiskum on Wednesday.
Authorities said then homemade bombs were thrown at security forces during a search of a suspected Boko Haram hideout, resulting in a gun battle, but gave no indication of casualties.
Violence linked to the Boko Haram insurgency in northern and central Nigeria, including killings by the military, have left more than 2,800 people dead since 2009, according to Human Rights Watch.
Potiskum has been among the cities hardest hit by the Islamists.