A reporter from the BBC said Islamists have infiltrated the town once again and are waging a guerrilla campaign with gunman riding motorbikes through the streets.
The gunfire began near the town's central police station but has now extended beyond there.
The renewed violence comes as military forces foiled a suicide bombing attack just north of Gao, the second such attack prevented in as many days, officials said.
A witness said Malian soldiers exchanged gunfire with the would-be attacker before an explosion killed the man.
"There were exchanges of gunfire for 30 minutes. Then the bomber came, he advanced alone. He was armed. Soldiers returned fire, shot him because he walked towards them and then boom an explosion," the witness said.
The attempted attack came one day after villagers 12 miles north of Gao arrested two men with explosives strapped to their bodies.
On Friday, a Tuareg dressed as a paramilitary officer detonated an explosive belt at a checkpoint, wounding a solider. The Movement for Oneness and Jihad in West Africa (Mujao) claimed responsibility for the Friday attack. A spokesman for the group said it would strike again, though no group has claimed responsibility for the two foiled attacks, Euronews.com reported.
They warned residents to stay away while new bombings are undertaken.
"We are dedicating ourselves to carrying out more attacks against France and its allies. We ask the local population to stay far away from military zones and avoid explosions," spokesman Abou Walid Sahraoui said.
Roads to the north of Gao were closed after Sunday's incident.