Unidentified armed men first hurled a hand grenade at a police van near Damaan plaza in the main bazaar on Tank’s Bannu Road.
Policemen Jameel and Abdul Ghaffar were among the 18 people injured seriously in the attack.
Later, the police retaliated with firing on the assailants.
After the attack, an emergency was declared in the DHQ hospital where the injured are being treated.
Some of the injured are being shifted the Dera Ismail Khan Teaching Hospital owing to their critical condition and a lack of facilities at the DHQ hospital.
The hospital is being provided a strict security cover by the police, while the bomb disposal squad is collecting evidence at the crime scene.
The security forces have besieged the area and are engaged in an exchange of fire with the suspects.