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Government forces launched a major counter-offensive and pounded the rebels from the air and with mortar fire, Observatory director Rami Abdel Rahman said.
He said at least 10 insurgents were killed on Monday.
A security source in Damascus told AFP soldiers and rebels clashed in Dukhaniyeh after insurgents infiltrated the village and took position in several buildings.
The source said rebels moved into the village to ease the pressure on the eastern Damascus district of Jubar, which the regime is trying to retake.
Dukhaniyeh is close to the mostly Christian southeastern suburb of Jaramana, where residents said they could hear explosions in the distance.
The village is of strategic value to the rebels because it serves as a launching-pad for mortar attacks on the capital.
Meanwhile, regime forces pressed a campaign targeting positions of the jihadist Islamic State group in the eastern province of Deir Ezzor and in the northern province of Raqa, the Observatory said.
But it reported that at least 69 civilians, including 18 children, were killed in two days of regime air strikes on the two provinces, which are largely controlled by IS.
Activists say air raids targeting IS in the area are also killing many civilians.
Syria's war has killed more than 191,000 people since March 2011.
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He said at least 10 insurgents were killed on Monday.
A security source in Damascus told AFP soldiers and rebels clashed in Dukhaniyeh after insurgents infiltrated the village and took position in several buildings.
The source said rebels moved into the village to ease the pressure on the eastern Damascus district of Jubar, which the regime is trying to retake.
Dukhaniyeh is close to the mostly Christian southeastern suburb of Jaramana, where residents said they could hear explosions in the distance.
The village is of strategic value to the rebels because it serves as a launching-pad for mortar attacks on the capital.
Meanwhile, regime forces pressed a campaign targeting positions of the jihadist Islamic State group in the eastern province of Deir Ezzor and in the northern province of Raqa, the Observatory said.
But it reported that at least 69 civilians, including 18 children, were killed in two days of regime air strikes on the two provinces, which are largely controlled by IS.
Activists say air raids targeting IS in the area are also killing many civilians.
Syria's war has killed more than 191,000 people since March 2011.
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