When I do this:
SpriteBatch spriteBatch = new SpriteBatch();
spriteBatch.setProjectionMatrix(new Matrix4().setToOrtho(
You're going to want to use the ScissorStack. Effectively, you define a rectangle that you want to draw in. All drawing will be in the rectangle that you defined.
Rectangle scissors = new Rectangle();
Rectangle clipBounds = new Rectangle(x,y,w,h);
ScissorStack.calculateScissors(camera, spriteBatch.getTransformMatrix(), clipBounds, scissors);
ScissorStack.pushScissors(scissors);
spriteBatch.draw(...);
spriteBatch.flush();
ScissorStack.popScissors();
This will limit rendering to within the bounds of the rectangle "clipBounds". It is also possible push multiple rectangles. Only the pixels of the sprites that are within all of the rectangles will be rendered.
From http://code.google.com/p/libgdx/wiki/GraphicsScissors