The perpetrators set fire to the house of Beta Singh in Bichhiya village, located about 490 kilometres north-east of the state capital, Bhopal, the IANS and PTI news agencies reported.
Eleven members of the family died on the spot while another victim died on way to hospital, police said.
The bandits locked the family, including four women and three children, in the house and set it on fire, police said.
The village is located in a forested area of the Satna district bordering Uttar Pradesh state. Several bandit gangs operate in the area.
The killings took place shortly after midnight and the bodies were recovered from the house Thursday morning, top Satna district official Sukhbir Singh was quoted as saying.
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