The attack came a day after a Taliban suicide bomber infiltrated the capital's main military hospital and killed at least six Afghan medical students.
In Sunday's incident, one guard was killed as the attackers - three or four men armed with guns and wearing explosives strapped to their bodies - shot their was into the traffic department compound on the edge of Khost city about 5 a.m., said Gen. Raz Mohammad Oryakhail, the army commander for Khost province.
The gunbattle was ongoing more than two hours later, with the assailants inside the second floor of the building and shooting down at police and soldiers outside, he said.
Police and soldiers were trying to avoid launching a full assault because they didn't want the gunmen to detonate their suicide vests, said provincial Police Chief Gen. Abdul Hakim Ishaqzai. Afghan security forces had the compound surrounded, he said.
No one immediately claimed responsibility for the attack, but it matched the pattern of Taliban assaults on government installations.
On Saturday, a Taliban suicide bomber on a mission to target foreign-run medical teams killed at least six Afghan medical students and wounded 23 others after infiltrating Kabul's main military hospital.
The bombing was a blow to Afghan and NATO forces who have sharply expanded checkpoints and security cordons in the Afghan capital as the Taliban intensifies their attacks ahead of a planned U.S. drawdown in July.
No foreign medical doctors or nurses were among the dead or wounded, Afghan and NATO officials said. There are a number of military doctors and nurses from various NATO countries at the hospital as part of the alliance's mission to train Afghan forces.
All those killed were eating lunch inside a tent used by medical students for meals, Defense Ministry spokesman Gen. Mohammed Zaher said.
The bombing was condemned by President Hamid Karzai and NATO. The United Nations called it a violation of "international humanitarian law."
The Taliban have stepped up attacks as part of their spring offensive against NATO, Afghan government installations and officials. Insurgents also have promised revenge attacks after the U.S. killing of al-Qaida leader Osama bin Laden in Pakistan earlier this month.
