Four people including two policemen were killed and nine were injured in a bomb blast and gun-battle near a mass Eid prayer gathering in Kishoreganj district in northern Bangladesh.
Police said that at least 200,000 people had gathered in Sholakia on Thursday morning to celebrate the festival of Eid, when the explosion happened.
"They threw a bomb at a police check post. A police constable was killed in the explosion. One attacker was killed and another was arrested," Mahbubur Rahman, a police officer in the district control room, told AFP.
The attackers are believed to be hiding in a school which is about a kilometer from the Eid prayer ground.
Tofazzal Hosain, the district's deputy police chief, said that several people had taken part in Thursday's attack. Some of them were armed with machetes which was a hallmark of recent attacks in Bangladesh.
"They first threw a small bomb targeting police and then attacked them with machetes. Police retaliated by returning gunfire," Hosain said.
There are reports that claim the attack was targeted at the imam or chief cleric of Kishoreganj, who is known for his liberal views. He apparently started a signature campaign to condemn terrorism in the name of Islam.
Prime Minister Sheikh Hasina has condemned the attack and said: "Instead of doing Namaz, what kind of Islam is this?".She also added that "Islam says you can't kill innocent people."
This is the second terror attack in a week after seven terrorists stormed a popular cafÃ© in Dhaka last Friday, killing 20 people, including 18 foreigners.
In the last three years, Bangladesh has faced a series of murders and attacks, many of which have been claimed by the Islamic State or an offshoot of the Al-Qaeda network.
The Islamic State terror group had issued a chilling video threatening more attacks in the country, saying: "What you witnessed in Bangladesh was a glimpse. This will repeat, repeat and repeat until you lose and we win and the sharia is established throughout the world."
The Bangladesh government has always denied the existence of Islamic State militant group in Bangladesh and insists that the homegrown Islamists are responsible for the attacks.