Local people hurled rocks at police who used bulldozers and the elephants in a show of force in Amchang wildlife sanctuary in Assam state.
The police commissioner, Hiren Nath, said five protesters were injured in a scuffle after officers deployed teargas to disperse them.
Authorities plan to demolish about 1,000 bamboo and tin huts.
The state forest minister, Pramila Brahma, said the area was an elephant habitat and the unauthorised settlements were forcing the animals to leave in search of food. There have been many incidents in which wild elephants have killed people and destroyed crops after entering villages.
Some environmentalists oppose the use of the animals to demolish structures, arguing it runs counter to their natural instincts and can cause them serious injury. But the elephants are able to reach some settlements more easily than excavators.
Those living inside the sanctuaries argue they should be given alternative houses before their existing homes are demolished.
Two people were reportedly killed and 17 injured, including 15 police officers, when protesters clashed with authorities during an elephant-led demolition drive in Kaziranga national park in September 2016.