Captain H. McAllester, with the remainder of our force, consisting chiefly of men whose horses were unshod or unfit to travel over the rough mountain trails, had been sent the previous afternoon to Sevierville from Chandler's, 18 miles from Knoxville, where I turned off to go to Wear's Cove. His instructions were to pickets the roads out of Sevierville, preventing any one from leaving the place, in order that information of our movements might not reach the enemy.

Lieutenant-Colonel Lamborn and myself reached Gatlinburg from opposite directions at about the same moment, both finding pickets posted, who immediately fired, thereby alarming the enemy's camp, which we found situated on a steep wooded ridge, commanding both roads and intercepting communication between us.

It being impossible to make a dash upon them, we were obliged to dismount our men and deploy them skirmishers. We drove them from their position, which was a strong one, in about an hour, but, unfortunately, the steep wooded ridge on which they had their camp jutted on to the mountain on the east, and it was impracticable to prevent the rebels on retreating from taking up this mountain where we could not reach them, and where they continued firing from behind the thick cover for several hours. They finally retreated, scattering over the ridges to the Great Smoky Mountain.

From all the information I could get, I estimate their force at about 200, of which 150 were Indians and the remainder white men, the whole under the command of Colonel Thomas, an old Indian agent.

We captured their camp with 1 prisoner, 16 horses, 18 muskets, 2 boxes of ammunition, several bushels of salt, meal, dried fruit, &c., and a large quantity of blankets, old clothing, &c. A number of squaws had reached them the previous evening, and they had evidently intended remaining at Gatlinburg for the winter, as their declarations to the citizens in the vicinity proved.

We destroyed the log huts and frame buildings composing their camp, and have returned most of the horses to their loyal owners. Colonel Thomas was evidently taken by surprise, as he had not time to get his hat from his quarters at the foot of the ridge, which one of our men captured.

I regret to report that two of my officers and a sergeant were wounded in the skirmish, Captain Clark seriously in the knee. Captain Betts received a painful flesh wound in the arm. The sergeant's wound was trivial. The loss of the enemy is not known. If any were killed they carried them off when they retreated.

Colonel Thomas has most probably taken his men back to Quallatown, in North Carolina, but I have sent a scouting party out this morning to ascertain.

I very much regret that we were not more successful. We rode all night over a foot path that many of the citizens considered impracticable; and while I cannot see that we could have done better under the circumstances than we did, yet I can now see from my knowledge of the ground (which was entirely unknown to us before) how I might have captured most of the party by making certain dispositions before reaching Gatlinburg.

I start this morning for Evan's Ford, on French Broad, 9 miles from Sevierville, and between that place and Dandridge, where I learn 100 rebel cavalry crossed last night.

I am, general, yours, respectfully,

WM. J. PALMER,

Colonel.