The attack is amid a mounting insurgency increasingly targeting civilians.
The attackers destroyed most of the village of Chukku Nguddoa and wounded another 10 people on Wednesday, said the police source in Borno state, the heart the revolt that is piling political pressure on the government.
Boko Haram, which grabbed world headlines last month by kidnapping more than 200 schoolgirls further north in Borno, has stepped up its five-year-old campaign to carve an Islamic state out of the religiously mixed oil producer.
Bomb attacks are growing more sophisticated, including two on the capital Abuja last month, and massacres of villagers in the area where Boko Haram is based are an almost daily occurrence.
(READ MORE: Nigerian Islamists extend killing spree in northeast - police)
Boko Haram initially attacked mostly security forces, government officials and sometimes Islamic clerics who spoke out against it.
But when President Goodluck Jonathan ordered a military offensive a year ago to flush them out, civilians formed vigilante groups to help out - and themselves became targets.
The mounting killings of civilians, and the government's apparent inability to halt them, have triggered widespread anger.
Nigerian teachers went on strike and staged rallies nationwide on Thursday in protest against the girls' kidnappings, as well as the killing of 173 teachers by the insurgents over the years.
A group of protesters in the capital Abuja tried to march up to the Presidential Villa but were prevented by a row of police.
Jonathan in an emailed statement urged protesters to ensure their "zeal is matched with a realistic understanding of the situation".
"When a bomb goes off in Baghdad, the people of Iraq do not blame the government, they blame the terrorists," he said. "When terrorists see Nigerians turn on each other in blame it gives them a huge morale boost ... the terrorists are the real enemy."
The ruling People's Democratic Party (PDP) and main opposition All Progressives Congress (APC), which rules Borno state, have blamed each other for the hostage crisis.
Jonathan and the military have been criticised in Nigeria for the slowness of their reaction to the mass abduction, and last week Nigeria accepted help from the United States, Britain, France and China to find the girls.
Some of the 80 U.S. troops deployed for a mission aiming to rescue the school girls have already arrived in Chad, Pentagon spokesman Army Colonel Steve Warren said on Thursday.
The U.S. military has also been flying unmanned surveillance aircraft over remote areas of northeast Nigeria for two weeks, and last weekend the Pentagon struck an agreement to enable it to share intelligence directly with the Nigerian government.
Yet a rescue mission would be fraught with danger. Little has been said in public about the girls' possible whereabouts or whether any negotiations are going on behind the scenes to free them.
Militants killed 17 people in the north-eastern village of Alagarno on Tuesday and razed several houses to the ground.
Hours earlier, a double bomb blast in the central Nigerian city of Jos killed 118 people, according to the emergency services, while men on motorbikes killed nine people in a raid on the nearby village of Shawa on Monday.
While authorities suspect Boko Haram of carrying out all these attacks, there have been no claims of responsibility.
The well-armed militant group has no direct line of communication with the Western press and its purported leader, Abubakar Shekau, claims only occasional attacks through videos circulated to local journalists.