A gunman dressed in an Afghan army uniform shot two British soldiers in Helmand province, southern Afghanistan, Defence Secretary Philip Hammond confirmed on Monday.
Hammond told MPs: "Our thoughts, as ever, are with their families, for whom this will be a deeply personal tragedy," he said.
"Details of the incident are still emerging but it appears that a member of the Afghan National Army opened fire at the entrance gate to the British headquarters in Lashkar Gar city, killing the two British service personnel.
"The assailant was killed by return fire."
According to the BBC the governor of Helmand said the shooting followed a "verbal clash" between Afghan and Nato soldiers, while the Taliban claimed responsibility for the shooting.
The attack appears to be the latest in a string of "green on blue" attacks in which Afghan security forces have turned on their international colleagues or mentors.
Five British soldiers were killed by a rogue Afghan policeman in November 2009. The gunman opened fire on the men in a military compound in Nad e-Ali before fleeing. The Taliban later claimed responsibility.
Fifteen Nato service members have been killed by Afghan security officials or militants disguised in their uniforms so far this year.
Such attacks become increasingly common over the past year, particularly since the burning of Korans at a US base in February which led to riots and the deaths of six US soldiers.
An Isaf spokesperson said they were investigating the issue, telling The Huffington Post UK: "According to initial reports an individual wearing a Afghan army uniform turned his weapon against international security assistance force service members in southern Afghanistan today killing two service members.
"The gunman was shot as killed. We're investigating the incident and will have more information as soon as possible," a spokesperson for Nato told the Huffington Post UK.
It comes after it was announced US soldier Robert Bales faces criminal charges for the murder of 17 Afghan civilians and attempt to murder six others near Afghanistan's Kandahar province.
Spokesman for Task Force Helmand Major Ian Lawrence said: "Sadly, I must report that a Royal Marine and a soldier from the Adjutant General's Corps were shot and killed by an Afghan National Army soldier at the main entrance to Lashkar Gah main operating base.
"The thoughts and condolences of everyone serving in the Task Force are with their families and friends."
In a statement issued by the MoD, Brigadier General Sherin Shah, of the Afghan National Army said: "Today's incident which involved armed conflict by one of the ANA members of the Fourth Kandak of 3-215 Brigade was a tragic event.
"The incident is still under investigation and it is unclear if the action was planned or influenced by the enemy or if he acted alone, either way it is with the deepest regret that two Isaf soldiers who came to our country to provide security are now dead.
"I would like to convey my deepest condolences to the soldiers' families and the British Army and Royal Marines, especially Task Force Helmand, for their loss."