Senior police officials said the circumstances that led to the fire incident were not immediately clear, and they were probing it from all angles, including suicide.
"We found four charred bodies that of Rajaiah's daughter-in-law (S Sarika) and his three grand-children," Warangal City Police Commissioner G Sudheer Babu said.
The grand-children were identified as seven-year-old Abhinav, and twins Ayaan and Shriyaan (aged three). All the four succumbed to burn injuries on the spot.
An LPG cooking cylinder with its regulator open was found in the room.
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"My sister cannot commit suicide...She was tortured and killed," Sarika's sister alleged.
It was not clear where the other members of the family including Sarika's husband S Anil Kumar were at the time of the incident. Anil and his parents apparently live on separate floors of the same house.
Replying to queries, including what caused the fire, Babu said: "There is still no clarity. We cannot say anything now. FSL (Forensic Science Laboratory) experts are looking into it. Once they complete their examination, we can say something."
The charred bodies were found in a room on the first floor of their Hanamkonda residence, he said.
Incidentally, a criminal case was filed against Rajaiah, his wife Madhavi, son S Anil Kumar and another woman, at the Begumpet women's police station in Hyderabad in April 2014, following a complaint lodged by Sarika, who alleged that her husband and in-laws had been harassing her for dowry.
Sarika had also staged a sit-in protest outside Rajaiah's house over the same matter at the time.
Rajaiah, a former MP from Warangal, is contesting the Warangal Lok Sabha bypoll scheduled on November 21.
The name of former Union Minister of State Sarve Satyanarayana is doing the rounds as a possible replacement.
Today is the last day for filing of nominations for the byelection, necessitated following the resignation of Kadiyam Srihari after he was made Deputy Chief Minister.
Rajaiah, who reportedly expressed inability to contest the byelection under the circumstances, was inconsolable, his aides said.