A group of attackers were holed up in a police training centre in the Pakistani city of Lahore on Monday after storming the building with guns and grenades, killing at least 20 people.

The attack came less than a month after a dozen gunmen attacked Sri Lanka's cricket team in the city, killing six police guards and a bus driver. Those gunmen escaped.

'Some gunmen entered the centre, threw hand grenades and then started firing,' said an intelligence agency official who declined to be identified.

'They are still in the building and firing is continuing.' It was not clear how many, if any, police inside the centre were being held hostage.

The attack will raise more fears about the prospects for nuclear-armed Pakistan where a one-year-old civilian government is struggling against a wave of Islamist violence.

The training centre attacked on Monday is on the outskirts of the city, on the road to the nearby border with India. Television channels said several hundred trainees were at the centre when the attackers, some dressed as policemen, struck.

'The gunmen attacked police recruits from four sides when they were doing their routine morning drills,' said a police officer at the scene.

The intelligence agency official said 10 people had been killed and 50 wounded. Another police officer said at least eight policemen had been killed.

A police armoured personnel carrier (APC) entered the compound and an exchange of fire, including what appeared to be a grenade explosion, broke out, a Reuters photographer at the scene said. The APC then withdrew.

Police, paramilitary troops and soldiers were surrounding the centre while colleagues were carrying wounded to ambulances.

One television station showed pictures of about a dozen policemen lying on a parade ground. Some appeared to be lifeless while others were crawling to cover.

An army helicopter circled overhead.

Militant violence has surged in Pakistan since mid-2007, with numerous attacks on the security forces and government and Western targets.

Most of the violence has been in the northwest, in areas along the Afghan border, but there have been attacks in all main cities.

US President Barack Obama announced a review of policy towards Afghanistan and Pakistan on Friday, vowing to tackle militants in Pakistan's ungoverned border areas.

Despite the violence in Lahore, Pakistani stocks and the rupee were both firmer in early trade. - Reuters