Presidential spokesman Ateny Wek Ateny said the town of Malakal, on the White Nile near oilfields in the north of the country, had been shattered by fighting but that its recapture marked a strategically important win.
A rebel spokesman said fighters allied to former vice president Riek Machar had made a tactical retreat from Malakal on Wednesday evening as the town came under heavy bombardment. But he said the rebels waged a new offensive on Thursday.
"We have retaken Malakal this afternoon after launching a counter-attack," Lul Ruai Koang, a rebel spokesman on military affairs, told Reuters in Ethiopia's capital, Addis Ababa.
It was not immediately possible to verify either side's account.
The latest clashes highlighted the lack of headway made in peace talks between the government and rebels after a ceasefire deal in January collapsed.
Negotiations were scheduled to resume on Thursday but the Juba government said it had not sent its delegation to Ethiopia because of a dispute over who should be represented.
"Our negotiation team has not yet gone to Addis Ababa. Only the government and the rebels should sit at the negotiation table," Ateny told reporters in South Sudan's capital.
Juba objects to seven ex-political detainees freed forming a third party at the talks. They were released in January but the government says they could still face criminal charges for alleged involvement in a coup plot.
"They are not fighting the government, they have no forces, they are still suspects," Ateny said.
The failure of peace talks so far has frustrated Western backers of the world's youngest country who are pressing both sides to lay down their weapons.
The United States, Britain, European Union andandnbsp;Norwayandnbsp;on Wednesday threatened targeted sanctions against the warring sides in South Sudan, which declared independence from Sudan in 2011 but has been plagued by disorder since.
Rebel spokesman Koang said Ugandan air and ground forces had bombed anti-government forces in Malakal on Wednesday, forcing their withdrawal to avoid more civilian casualties.
The presence of Ugandan troops in South Sudan is a major sticking point stalling the negotiations.
Ugandan forces entered South Sudan on Juba's invitation to help protect the airport, presidential palace and other installations in the capital, but have been accused by rebels of fighting alongside government soldiers in various flashpoints.
Malakal is a gateway to Upper Nile state's oil fields, where production his week held steady at about 160,000 barrels a day, an official told Reuters on Wednesday. Oil facilities in neighboring Unity state were shut soon after the fighting erupted in mid-December.
Thousands have been killed and almost a million uprooted from their homes in the conflict, which has often pitted factions from President Salva Kiir's Dinka community and the Nuer ethnic group of Machar against each other.
(Additional reporting by Aaron Maasho in Addis Ababa; Writing byandnbsp;Richard Lough; Editing byandnbsp;Andrew Roche)