Police were trying to evict about 150 farmers from the reserve, which is part of a huge estate owned by a Colorado Party politician opposed to leftist President Fernando Lugo. Among the seven officers killed was the brother of Lugo's chief of military security. Ten farmers also were killed, and 27 other officers were injured as police kept up the firefights in the forest, some 150 miles north of the capital Asuncion.
Lugo suspended his agenda and called a Cabinet meeting. He said the army has his support to put an end to the violence and ruled out any connections to the Paraguayan People's Army, a small leftist guerrilla group that has attacked rural police posts in the northern part of the country.
"I extend my sorrow and repudiation of the actions that led to the killing of these people," Lugo told reporters. It is one of the most violent land disputes in decades in the usually peaceful South American nation.
The 4,900-acre (2,000)-hectare reserve is part of a vast ranch owned Blas Riquelme. "Twenty years ago we declared this a forest reserve but farmers have wanted to occupy it since last year," said Jose Riquelme, the owner's son.
Activists for poor farmers, however, say Riquelme acquired the land from the state decades ago and that it should have been put it to use for land reform. Paraguay is the world's fourth-largest supplier of soybeans and land disputes have risen in recent years as farmers seek more land to grow the country's top export earner.
Lugo won election in 2008 in part on a promise of agrarian reform that would benefit 87,000 Paraguayan farm families, though as he nears the end of his term he has yet to deliver and the problems are more vexing than ever.
"Lugo can't fix a grave social problem: the recovery of state lands seized decades ago by people like Riquelme who we not subject to the land reform," said Jose Rodriguez, an adviser for the landless rights groups.