Those killed have been identified as constable Lingaiah (36) and home guard Mahesh (35).
The incident occurred just after midnight when policemen were checking a few buses at a bus station at Suryapet in Nalgonda district, about 130 km from here.
Two suspects who were being questioned by police opened fire killing a police constable and a home guard. A police inspector and a home guard were also injured.
Circle inspector Mugulaiah, who was leading the police party, and home guard Kishore were injured. They were shifted to a private hospital in Hyderabad, where Telangana Home Minister N Narasimha Reddy called on them. The injured are in a stable condition.
While fleeing, the two suspects also opened fire on a car, injuring a civilian.
Police sounded an alert in the region and constituted special teams to hunt for the gang, suspected to be from Uttar Pradesh or Bihar.
Director General of Police Anurag Sharma told reporters after visiting the crime scene on Thursday that empty cartridges found at the scene show country-made weapons were used.
“Usually, gangs in north India, especially in Uttar Pradesh and Bihar, use such weapons. We suspect involvement of a gang from Uttar Pradesh or Bihar,” he said.
The police chief said investigation teams from Hyderabad had reached Suryapet for a thorough probe into the incident.
The DGP ruled out the involvement of Maoists, saying there is no evidence to suggest this.
The home minister said police would spare no effort to catch the criminals at the earliest.
The police chief said the buses were being checked in view of the recent incidents of theft involving gangs from other states.
“The policemen ordered two suspects to get down from a bus and were questioning them when they suddenly opened fire,” the DGP said.
While fleeing on Hyderabad-Vijayawada highway, the assailants also opened fire on a car, injuring one person. Dorababu is a village level public representative from the neighbouring state of Andhra Pradesh.
The DGP announced an ex gratia of Rs 25 lakh for the family of the killed police constable and Rs.10 lakh for the family of the home guard.
He said the families would also get insurance money and jobs would be given to a member from each family.