TWO people were shot dead and another is nursing bullet wounds, after an attack by policemen near the Bumbu barracks in Lae on Saturday, relatives said.
Lae metropolitan Commander Supt Nema Mondiai has ordered an immediate investigation into the incident.
The dead and injured live between the narrow strip of embankment, which is also a flood zone, between the Bumbu River and the police barracks.
Relatives said the shooting had followed a fight between some of them and children of policemen last Friday.
Another fight, with stones being thrown at each other, erupted on Saturday morning.
Community leaders said they managed to calm the situation down and wanted to hold peace negotiations at 2pm.
They said at around lunchtime, four uniformed policemen walked into the squatter settlement and began firing.
They said police fired a warning shot. Then a second, which hit Jerry Gum, 22, of Yangoru, East Sepik province, in the shoulder. He is now recovering at Angau Memorial Hospital.
They said other shots killed Ruth Kumai, a mother of three who was shot in front of her three-year-old daughter Naomi; and Erikul Lucas, 28.
Both were from Kokul village in Sinasina district, Simbu province.
In all, they claimed six shots were fired.
The squatters said since settling there, they had not had any serious arguments with the policemen and their families.