Militants threw hand grenades at the entrance to the building used by police intelligence before opening fire, district police chief Waqar Ahmed told AFP.

"About five to seven militants have stormed an old police station building which is now being used by officials from special branch," Ahmed said.

"An exchange of fire is continuing," he added.

Gulab Niaz told AFP by telephone from inside the building that he and two colleagues had locked themselves in a room as the shootout unfolded outside.

Two wounded policemen were evacuated to hospital, where one died of his injuries, police official Nisar Ahmed told AFP.

Local residents were being evacuated, shops have closed and a curfew imposed in the city, 150 miles (240 kilometres) southwest from the capital Islamabad, police said.

Taliban spokesman Ehsanullah Ehsan claimed responsibility for the assault in a telephone call to AFP.