Violence erupted in Rangeli Municipality of southern Morang district after hundreds of activists of Samyukta Loktantrik Madhesi Morcha (SLMM) armed with batons, knives and petrol bombs tried to disrupt an event hosted by Youth Association of Nepal (YAN) to honour the Prime Minister.
Police tried to stop the clashes with batons, tear gas and blank shots, but as the protest became violent they were forced to fire at the crowd, Home Ministry spokesman Yadav Koirala said.
The deceased have been identified as Draupadi Devi Chaudhary, 60, Shivu Majhi and Mahadev Hrishi.
DIG Madhav Joshi said the injured have been rushed to a local hospital.
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Prime Minister Oli cancelled his visit after the tension in the area.
CPN-UML general secretary Ishwor Pokharel and other senior leaders had reached the venue to address the gathering.
The Madhesi Front had earlier issued warning asking the YAN not to organise the programme, saying that it would foil any attempt to honour the prime minister.
Meanwhile, the talks between the protesting Madhesi groups and the government continued today with the agitating leaders and the Prime Minister holding a meeting here. But no agreement was reached at the meeting.
A top leader of the United Democratic Madhesi Front, the main group leading the protests, said that the two sides were at the same position they were earlier and no progress was made.