The battle for control of Glodjane, east of Decani, was described as "was one of the heaviest so far".
A source said the village, which was under Serb control in the afternoon, had been one of the biggest remaining strongholds of the Kosovo Liberation Army (KLA).
Glodjane is in the far western reaches of Kosovo where the KLA, fighting for independence from Serbia, has put up fierce resistance to a Serb security force juggernaut sweeping through towns the KLA controlled as little as three weeks ago.
There was no official report on casualties, but the Serb-run media centre in the provincial capital Pristina said there were wounded from the battle, which had lasted at least two days. The media centre said one Serb policeman was wounded in a mortar attack near Glodjane on Tuesday and two were wounded in a separate incident.
Earlier on Wednesday, the independent news agency Fonet said one policeman was killed and six were wounded in the fighting around Glodjane in the past 48 hours.
Fonet also quoted the ethnic Albanians' Kosovo Information Centre as saying eight Albanians were killed and 45 wounded in the past 24 hours in clashes in the Decani region.
The Yugoslav news agency Tanjug quoted the Yugoslav army third command as saying two soldiers had been killed in battles with "Albanian terrorists" but did not specify where the fighting took place.
The fall of Glodjane came as US ambassador Chris Hill was due to return to Pristina for talks with Ibrahim Rugova, president of Kosovo's ethnic Albanians who make up 90 percent of the province's two million people.
The visit is part of Hill's continuing effort to jumpstart talks between ethnic Albanians and the Belgrade authorities. A US embassy press official confirmed the meeting but could not give a time.Reuse content