The exact cause for the clash could not immediately be ascertained though media reports said it began after someone fired at a Shia procession in Raja Bazar area of Rawalpindi. Some reports said the Shias attacked the Sunnis for insulting them.
About 20 others, including several policemen, were injured in the violence.
Faisal Cloth Market in Rawalpindi was partly set on fire and members of the two communities pelted stones at each other, police and witnesses said. Capital TV channel reported that three persons were killed and an emergency had been declared in the city's hospitals.
The Shias were observing Ashura, which commemorates the death of Prophet Mohammed's grandson. Shias have often been targeted by terrorist groups during Muharram in recent years.