At least 25 Malian soldiers are dead and 60 more are missing after militants attacked two army outposts, the government said.
Camps in the towns of Boulkessy and Mondoro near the border with Burkina Faso came under attack on Monday.
The government says their troops killed 15 militants and have since recaptured the area, but lost a lot of equipment.
Malian forces have now launched a joint operation with Burkina Faso and French forces in the region.
Mali has suffered jihadist violence and ethnic rivalries since 2012, when Islamist militants took over the north of the country and France launched its military intervention.
This is one of the deadliest attacks against government troops this year.
The West African country - along with Burkina Faso, Chad, Niger and Mauritania - is part of an anti-insurgency force supported by France known as the G5 Sahel.
On Monday, the five-nation group blamed "suspected members of Ansarul Islam" for the attack at Boulkessy.
Ansarul Islam, meaning Defenders of Islam, was created in 2016 by the radical and popular preacher Ibrahim Malam Dicko. He reportedly fought with Islamist militants in the north of Mali in 2012.