The clash broke out late Friday in the mountains of Chiang Rai after a border patrol spotted about 10 hill tribe people who refused to stop after crossing the frontier, according to the authorities.
"When we cleared the clash site we found seven men shot dead and we seized six bags of methamphetamine," a local border task force official said by telephone, adding that each bag contained an estimated 100,000 tablets.
"Sporadic shooting continued through the night," said the official, who did not want to be named.
Clashes between security forces and drug traffickers are fairly common in the kingdom's border regions including in the Golden Triangle, where the remote edges of Thailand, Myanmar and Laos meet.
Thailand has seen a marked increase in seizures of methamphetamine, which is relatively cheap and easy to make.
Known as yaba, the pills are often smuggled from neighbouring Myanmar where armed rebels use profits from narcotics to fund their operations.
There are an estimated 600,000 yaba users in Thailand.
Pol Gen Pongsapat Pongcharoen, commander of the Office of the Narcotics Control Board, said the traffickers probably wanted to take advantage of Thailand's Songkran New Year holiday which starts this weekend.
"They thought that police are busy directing traffic or taking days off during the holidays but in fact we intensify the crackdown during this period," he said.
"This fatal incident may deter them for a while but it will not root out the drugs problem," he added.