Protesters alleging that foreign troops burned a copy of the Koran have clashed with Afghan and coalition troops in Helmand province, police say.
They said that at least six people were killed in the violence which took place in Garmsir district.
Nato denied foreign troops had desecrated the Koran and said there was no evidence civilians had been killed.
Violence in the south has risen recently as UK and US forces continue their offensive against the Taliban.
Violence erupted on Tuesday in the Garmsir district over rumours that Nato-led forces had defiled a copy of the Muslim holy book during a military operation, local residents and police said.
According to reports, more than 1,000 protesters gathered to demonstrate.
The shooting of the protesters occurred after an Afghan national guardsman was killed by gunfire "from the demonstrators' side", the AFP news agency quoted deputy provincial police chief Khamal Dinkhan as saying.
The Nato-led International Security Assistance Force (Isaf) said in a statement on Tuesday that its troops had shot dead an "insurgent sniper" who had shot an Afghan official in the Garmsir area.
"While denying these allegations, we take them very seriously and support a combined investigation with local Afghan authorities," Isaf spokesman Maj-Gen Michael Regner said.
"Isaf is an international force that includes Muslim soldiers, and we deplore such an action under any circumstances."
A Nato spokesman said there was no information to back up claims of civilian deaths in the incident.
Civilian deaths at the hands of foreign troops have led to widespread anger among Afghans.
President Hamid Karzai has previously said that such deaths were damaging to the fight against militancy.