* Islamists fighters infiltrate desert town Timbuktu
* Attack reflects challenge of securing Mali
* France says seeks to draw down troop presence
Malian soldiers backed by French fighter jets battled Islamist rebels in Timbuktu on Sunday after insurgents used a car bomb as cover to infiltrate the northern desert town overnight, sources said.
The French-led offensive in Mali has pushed a mix of Islamists out of their northern strongholds and remote mountain bases but the militants have hit back with several suicide attacks.
At least three Malian soldiers were injured in Sunday's fighting in the ancient Saharan trading hub 1,000 km (600 miles) north of the capital Bamako, and residents were forced to take shelter indoors, Mali army Captain Modibo Naman Traore said.
"It started after a suicide car bombing around 2200 (2200 GMT), that served to distract the military and allow a group of jihadists to infiltrate the city by night," he said.
"The fighting is heavy and it is ongoing. We are in the process of encircling them."
Bilal Toure, a member of Timbuktu's crisis committee set up after the town was recaptured from Islamist control in January, said he saw a French plane firing on the rebel positions.
Officials did not say how many rebels were in the town.
The attack reflected the challenge of securing Mali as France prepares to reduce its troop presence and hand over to the ill-equipped Malian army and a more-than 7,000-strong regional African force.
Mali's defence ministry said on Saturday that two Nigerian soldiers in the regional African force were killed when their convoy struck a mine outside Ansongo, near the Niger border.
France launched its intervention in Mali in January to halt an advance by northern al Qaeda-linked rebels towards Bamako.
President Francois Hollande said on Thursday that France will reduce its troop numbers in Mali to 2,000 by July and to 1,000 by the end of the year, down from 4,000 at present.
The West African former colony is to hold presidential and legislative elections in July - vital steps to stabilising the gold- and cotton-producer after a military coup a year ago paved the way for the northern rebel takeover.