Royal Marine Andy Mason, on Sparrow Hawk ridge, sighted his heat-seeking Javelin anti-tank missile and squeezed the trigger. Eight seconds later it smashed into the target, a large house from which Taliban insurgents were firing at British forces.

Half a dozen insurgent fighters jumped off the first-storey balcony just before it disintegrated. Others in the compound were trying to flee when air strikes were called in. A Tornado GR7 dropped a 1,000lb bomb, leaving the building a pile of rubble and billowing smoke.

This encounter took place on Friday night in Kajaki, one of the most ruggedly beautiful parts of Afghanistan, but also the most dangerous, with daily fighting between Royal Marines and insurgents. Just before our helicopter landed from Camp Bastion, the main British base in southern Afghanistan's troubled Helmand province, the Taliban had begun shooting at the British position, starting a firefight that went on into the night.

While violence has ebbed away at other flashpoints in northern Helmand such as Sangin and Now Zad, and a truce of sorts holds at Musa Qala, it has escalated at Kajaki. Flanked by mountains and a deep-water lake, the area has become a symbolic and logistical prize for both sides. At its heart is the Kajaki dam, the biggest United States aid project in Afghanistan, which, when fully operational, will supply power to the provinces of Helmand and Kandahar.

The US construction company Lewis Berger has refused to begin work until a 6km safety zone has been established around the dam. That is what the Marines of 42 Commando are creating, in attritional warfare across some of the country's most inhospitable terrain.

In one week, starting on New Year's Day, British forces said they had killed more than 120 Taliban. One Marine and one member of the Parachute Regiment have been killed, and around half a dozen injured.

"I could see the guys on the balcony in my sight when I fired the Javelin", said 27-year-old Marine Mason, from Harlow, Essex. "They had received fire from us and would have known what to expect. All they would have seen was a flash. They jumped off the balcony and the Javelin followed them down. These are awesome weapons, but it's a sobering thought that each time you fire them it is costing £65,000. We come in constant contact with them, but we have firepower they can't match."

From three vantage points - Sparrow Hawk, Athens and Normandy - the Marines attempt to control and then expand into the valleys. They live and fight from old Soviet positions where one still comes across the debris of a lost war - twisted artillery wreckage, spent shells and also personal items like spectacles and books, abandoned when Soviet forces left in a hurry. Down below, groups of men, suspected insurgents, can be seen moving along the narrow tracks and a deep wadi between walled compounds. British convoys leaving Kajaki come under frequent Taliban fire.

Resting on sandbags next to his heavy machinegun, Corporal Steve Machin, a 34-year-old from Rotherham with 15 years' service, said: "I have seen a bit of action. I took part in the Iraq war, and I have been back there. I have also spent a lot of time in Northern Ireland. But this is the scariest place I have been to. I have never had so many bullets whizzing past at such a rate. And this is constant. One of our busiest days was at Christmas - for some reason they opened up and just kept going."

Captain Anthony Forshaw, acting commander of M Company, 42 Commando, said: " We can track their communications, and we can also track down where they are by their firing positions. That is how we got the men in the balcony building. They have been well trained in military fashion - I don't really want to speculate by which country. We have watched them carry out patrols, and it is pretty professional. We have identified some of their commanders, and we know the ones we have killed."

It was not an easy mission, said the officer, but he was firm on one point: " I think we are winning."

As the British troops and Taliban fight it out, it is the Afghan civilians who are caught in the middle. Swathes of farmland around Kajaki are uncultivated because of the conflict.

Visiting the market at Lashkar Gah, farmer Shah Mohammed said: "We have gained nothing from this. The British bombed the place because the Taliban were there, and the Taliban drive us out of our homes. It is the poor who suffer.

"I have had friends killed and neighbours killed, and they are leaving behind their families. All we want is peace."