Laxman Munda (35) of Dudita village had been to his sister's place at Gidei.
Munda, said to be mentally unstable, suddenly attacked the two girls with an axe last evening, killing them on the spot, they said.
Angry over the killing of Laxmi Munda (5) and Rashmi Munda (8), residents of the village converged at the site of the crime, caught hold of Laxman and gave him a severe thrashing.
On getting information about the incident, police reached the spot and took the accused to Koira primary health centre for treatment. However, Laxman succumbed to his injuries at the hospital, sub-divisional police officer Amaresh Panda said.
He said Laxman was described by locals as a mentally challenged person and there was no specific reason for which he attacked the girls.