The town in Nigeria's extreme northeast was almost entirely destroyed in an Islamist attack in May that killed more than 300 people and locals have voiced outrage at being left defenceless by the military.
The latest insurgent violence comes after Boko Haram leader Abubakar Shekau declared that the town of Gwoza -- southwest of Gamboru Ngala in the same Borno state -- was now under an Islamic caliphate.
Residents told AFP that Monday's attack began at roughly 5:30 am (0430 GMT), with the extremists launching coordinated strikes on the main police station and a military base known as the Harmony camp.
"The sounds (of gunfire) became more deafening as police and soldiers responded to Boko Haram," said witness Hamisu Lawan. "Most of our people have fled into Cameroon."
Cameroon on August 18 said it had closed its vast border with Nigeria to guard against the spread of Ebola.
But few believed the country had the resources needed to seal all crossings along the roughly 1,600 kilometre (1,000 mile) frontier.
Another Gamboru Ngala resident said the battle was ongoing and locals had locked themselves indoors.
The insurgents "have for now focused attention on the police station and the military camp but our fear is that once they overrun them they will turn to us," he told AFP.
Local officials and residents in Borno say Boko Haram may be in control of a key road which connects Gamboru Ngala to the state capital Maiduguri.
Establishing which parts of the area have in fact fallen into rebels hands is difficult in the remote region.
Shekau's claim concerning Gwoza, made in a video message obtained by AFP on Sunday, has been rejected by the military.
Defence spokesman Chris Olukolade said Nigeria's sovereignty remains intact but that assertion is in conflict with multiple reports indicating that Boko Haram controls several towns in Borno and at least one in neighbouring Yobe state.
The Islamists are blamed for more than 10,000 deaths in a five-year uprising but the violence has reached unprecedented levels this year.