Afghan forces battled today to end an hours-long gun and bomb siege near the Indian consulate in Mazar-i-Sharif city.
The lethal attack threatens to derail Prime Minister Narendra Modi's bold diplomatic outreach to arch rival Pakistan and follows his first official visit to Afghanistan in December 2015.
No group has so far claimed responsibility for the raid on the diplomatic mission in northern Afghanistan, the latest in a series of assaults on Indian installations in the country.
"Our clearance operation is going on near the consulate," government spokesman Munir Farhad told AFP.
"Since it is a residential area, we are proceeding very cautiously after overnight fighting to avoid civilian casualties."
An Indian official, who was hunkered down in a secure area within the diplomatic enclave, said all consulate employees were safe and accounted for.
"We are being attacked," the official told AFP by telephone from inside the heavily-guarded compound.
"Fighting is going on," he said soon after the fighting erupted late Sunday evening.
Vikas Swarup, an Indian foreign ministry spokesman, also told AFP that no Indian casualties had been reported so far.
The spike in violence comes a week after Modi paid a surprise visit to Pakistan, the first by an Indian premier in 11 years.
The visit immediately followed a whirlwind tour of Kabul, where Modi inaugurated an Indian-built parliament complex and gifted three Russian-made helicopters to the Afghan government.
India has been a key supporter of Kabul's post-Taliban government, and analysts have often pointed to the threat of a "proxy war" in Afghanistan between India and Pakistan.
Pakistan - the historic backers of the Taliban - has long been accused of assisting the insurgents, especially with attacks on Indian targets in Afghanistan.
The latest unrest coincides with a renewed international push to revive peace talks with the resurgent militant movement.
Afghanistan and Pakistan are set to hold a first round of dialogue between Afghanistan, Pakistan, the US and China on 11 January to lay out a comprehensive roadmap for peace.
Pakistan, which wields considerable influence over the Taliban, hosted a milestone first round of talks in July but the negotiations stalled when the insurgents belatedly confirmed the death of longtime leader Mullah Omar.
The attack on the consulate in Mazar-i-Sharif marks the latest attack on high-profile Indian targets in Afghanistan.
In 2008, a car bomb at the Indian embassy in Kabul killed 60 people and the facility was again hit by a suicide strike in 2009.
Nine civilians, including seven children, were killed in August 2013 when suicide bombers targeted the Indian consulate in the main eastern Afghan city of Jalalabad.
And in May 2014, gunmen launched a pre-dawn attack on India's consulate in the main western Afghan city of Herat before being repelled by security forces.
A spokesman for the governor of Balkh province said that two loud explosions were heard even as fierce gunfight between militants and Afghan forces raged.
Afghan authorities said the militants armed to the teeth tried to storm the consulate.
"They faced resistance from the guards and, instead, entered a house about 100 metres from the consulate and opened fire from there," spokesman Muneer Ahmad Farhad said.
He added that some casualties had been reported but initial details were scarce.
Meanwhile, security forces are carrying out door-to-door search in the area and have not ruled out the presence of more attackers.
"The area is completely blocked by our forces," said Shir Jan Durrani, a police spokesperson. "We are cautiously conducting our clearance operation to avoid any civilian casualties."
Sunday's attack came as Indian security forces were still trying to suppress an assault on an airbase near the border with Pakistan that has killed at least seven military personnel and wounded 20 others.