Reports of decomposing bodies littering the streets of Damasak came as president Muhammadu Buhari denounced the Islamists as a bogus religious group and vowed a hard line against them when he comes to power at the end of next month.
Northeast Nigeria has been relentlessly targeted throughout the jihadists' six-year uprising but there had been a lull in violence in recent weeks.
A coalition of troops from Chad, Cameroon, Niger and Nigeria has claimed major victories since February,
reportedly flushing the militants out of areas they previously controlled.
The discovery of hundreds of bodies, including women and children, and the latest attacks underlined both the brutality of the conflict and the continuing threat posed by the extremists.
The grim find in Damasak "far outnumbered" that of about 100 bodies found in a mass grave under a bridge
after the town was liberated in early March by Chadian forces, said local resident Kaumi Kusur.
"Dead bodies were found in houses, streets and many more in the Damasak River which has dried up," he said, adding the victims were buried in 20 mass graves at the weekend.
Mohammed Sadiq, another local who helped in the burials on Saturday, put the death toll at more than 400 but the Borno state government did not state a precise figure, giving a toll of "hundreds".
The victims had been covered by sand from the encroaching desert, with the burial ordered by the state authorities, which are looking at the return of thousands of people displaced by the violence.
Buhari, who takes office on May 29, was elected last month on a pledge of a tougher approach to Boko Haram than the current administration of President Goodluck Jonathan.
The former military ruler said in a statement issued by his All Progressives Congress party: "No religion allows for the killing of children in school dormitories, in markets and places of worship.
"They have nothing to do with religion. They are terrorists and we are going to deal with them as we deal with terrorists."
Buhari was speaking after Boko Haram fighters stormed the island of Karamga on Lake Chad in motorised canoes before sunrise on Saturday.
Troops from Niger stationed on the island "were caught off guard" and suffered heavy losses, said Umar Yerima, a fisherman who witnessed the raid but escaped by hiding in long grass near the shore.
Niger's military confirmed the attack but did not provide a death toll. A security source in Chad said Niger lost 48 soldiers and another 36 were missing.
Another source, an official from southeastern Niger's Diffa region, said the toll was much higher at 80 dead and some 30 missing.
Yerima told AFP the Islamic State group-allied militants "turned their guns" onto civilians after overpowering the troops, firing at people who had jumped into the water to avoid detection.
Some residents were also burnt alive in their homes, he added.
On Friday, suspected Boko Haram fighters disguised as soldiers intercepted a group of people trying to return to their homes to collect abandoned food supplies in northeastern Yobe state.
"The men, 21 of them, were stopped at Bultaram (village) by gunmen we believe are Boko Haram who shot them dead," said Baba Nuhu, an official with the Gujba local government.
Like many Gujba residents, Nuhu and Haruna Maram, the brother of one of the victims, have sought refuge from the violence in Yobe's capital Damaturu.
"My brother and 20 others wanted to bring back their grains to augment their lean food supplies," Maram said. "Unfortunately, they were killed by (the) same Boko Haram we ran away from."
Gujba is one of a handful of districts in Yobe that Boko Haram captured during its sweeping offensive from mid-2014.
It was also the scene of a gruesome massacre at an agricultural college in 2013 that targeted students sleeping their dormitories.
Community leaders have warned civilians are still at risk, especially those returning to remote areas like Gujba where the military's deployment has typically been thin.
Many experts agree that Boko Haram is likely to transition from capturing and holding territory to reverting to a pattern of hit-and-run attacks.
Analysts say boastings from regional armies should be treated with caution, as the Islamists are far from defeated and can easily regroup, especially if there is a let-up in the military pressure.