Bangladesh police said they had shot dead two Rohingya refugees during a gunfight in a refugee camp on Saturday after the pair were accused of killing a ruling party official.

Nearly a million Rohingya live in squalid camps in southeast Bangladesh, 740,000 of whom fled a 2017 military offensive against the Muslim minority in Myanmar.

The incident comes two days after a second failed attempt to repatriate the refugees, which saw not a single Rohingya turn up to return across the border to conflict-scarred Rakhine state.

"Both men died as they were rushed to a hospital," local police inspector Rasel Ahmad told AFP, adding that the incident took place in Jadimura refugee camp in Cox's Bazar district.

Ahmad said the two Rohingya were shot and critically injured during a manhunt for suspects after a youth wing official of the ruling Awami League party was killed, allegedly by armed refugees.

Awami League official Omar Faruk was shot in the head on Thursday, at a settlement near the border town of Teknaf, Ahmad said.

His murder had sparked anger among the local population, with hundreds of furious people blocking a key highway leading to the camp for hours, burning tyres and vandalising shops visited by refugees.

Ahmad said the two men killed on Saturday had been identified as key suspects in Faruk's killing and added that they had been shot while the officers were ambushed by the suspected criminals.

"It was wrong of the refugees to agitate the locals. We want justice in the quickest possible time," said Abdul Matin, a friend of the deceased politician.

Rohingya refugee Mohammad Saber, who narrowly escaped the mob said, said locals had beaten refugees.

"They threatened us, saying we should leave or else they'd kill us. Why should we get punished if others did something bad?" he said.

Other refugees said the recent bloodshed has created an atmosphere of fear in the camp, where security has been tightened.

The usually busy camp was quiet late Saturday, with roads and shops closed.

Ikbal Hossain, deputy police chief for Cox's Bazar district, said they would take action against those responsible for the violence.

"We have identified some of them. We will bring them to justice at any cost," he told AFP.

On Thursday Bangladesh's second attempt to start repatriation of Rohingya back to Myanmar faltered after the refugees said they won't return unless their security is ensured and they were granted citizenship in their homeland.

© AFP