The incident occurred at around 2 AM in Sonped village on the outskirts of Delhi, according to police.
Vaibhav, who was two-and-a-half years old, and his sister, 11-month-old Divya, died on the spot after the attackers allegedly poured petrol and set the house ablaze.
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Their mother Rekha suffered 70 per-cent burns and has been referred to Delhi for treatment while their father Jitender too suffered injuries while trying to save his family.
Jitender alleged that the attackers were from Rajput caste and the family had a confrontation with them in October after which a case had been registered.
"We were sleeping when they poured petrol from the window. I smelt the petrol and tried to wake up my wife but by then the fire had started. My children died in the fire...," said a wailing Jitender.
"They had threatened me that they will finish my family, That I should never return to the village... I won't but please give me back my children," he said. The incident has led to tension in the area.
"Security has been tightened in the village and we are investigating the matter," a police official said.