The state of emergency has failed to quell the violence
The emir's palace was burnt during Wednesday's attack on Bama, northern Nigeria, in which at least 60 people were killed, police say.
The extent of the damage is not clear. "They set the palace on fire. Many died," one resident said.
The emir is one of northern Nigeria's most important traditional rulers, some of whom have already been targeted by Boko Haram Islamist militants.
More than 300 people have been killed this year by insurgents.
The attack on Bama came a day after presidential spokesman Doyin Okupe said the army was "winning the war" against Boko Haram.
'Ran for their lives'
Details of the attack were slow to emerge because the mobile phone network has been badly affected by the insurgency - militants have blown up masts, while the army has disrupted the signal in order to hinder the attackers' communications.
Boko Haram leader Abubakar Shekau said traditional rulers would be targeted
Borno state police chief Lawal Tanko said that at least 60 people had been killed in the attack and that a school had also been targeted.
"The toll is likely to rise," he told the AFP news agency. "The attackers caused enormous destruction. They burnt down some of the major landmarks in the town."
He said the air force had sent planes from the state capital Maiduguri 60km (40 miles) away to bomb the insurgents.
Abba Masta, who lives near the palace, told the Reuters news agency: "Students had to run for their lives as they attacked the government girls' college as well."
Borno state senator Ahmed Zanna told the BBC the attack on Bama had lasted for five hours on Wednesday morning.
The town has been attacked several times in the past.
Boko Haram leader Abubakar Shekau on Wednesday released a video in which he named traditional rulers, as well as politicians, Christians, schools and Nigeria's oil industry based in the south, among targets for attack.
Boko Haram, which means "Western education is forbidden" wants to establish Islamic rule in the mainly Muslim north of Nigeria.
It launched its uprising in 2009 and has staged attacks across northern Nigeria, and the capital, Abuja.
It has not yet hit the oil-producing Niger Delta.
On Tuesday, Mr Okupe said the military was "on top of the situation".
Mr Okupe's statement contradicted the comments of the governor of Borno state, where Boko Haram was founded.
Governor Kashim Shettima called for reinforcements and said the insurgents were "better armed and better motivated" than the security forces.
A state of emergency was declared in Borno and two neighbouring states last year, with thousands of extra troops sent to the region, but the attacks have continued.
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