The incident was allegedly instigated by a woman vendor at one of the community markets just near the settlement.
The clash started yesterday and is still ongoing between two communities from Mt Hagen and Pangia.
Police are now at the scene as situation is very tense, while the two sides are armed with dangerous weapons.
Gerehu police station commander, Robert Kurei, confirmed with TVWAN that two were killed yesterday while a number of injuries have been reported.
The deceased are from Pangia, Southern Highlands Province.
He said the fight allegedly started when a drunk man almost killed a woman vendor.