The action marks significant progress in the governments' long campaign against the rebels as Myanmar moves toward democracy, The New York Times reported.
A spokesman for the government could not confirm the hilltop, Hkayabum, had been taken by government forces, but said "heavy fighting is ongoing."
Tens of thousands of people have been displaced in the government's running battles with the Kachin Liberation Army.
Myanmar declared a cease-fire with the rebels a week ago, but Ryan Roco, an American photographer covering the fighting from the front lines, said the cease-fire never went into effect.
"It's been a nonstop barrage, " he said.
On Thursday, the U.S. embassy in Yangon said in a statement it "strongly opposes" the continued fighting, saying the conflict had "undermined efforts to advance national reconciliation."