It appears he could have been involved in a dispute with his commander, but tribal sources have pointed to a link with the Taliban, our correspondent said.
Caroline Wyatt, BBC defence correspondent
Training the Afghan police as well as the Afghan army is key to Nato's plans in Afghanistan, so they can ultimately take over security across the country, allowing British and American forces and their allies to gradually leave.
However, recruiting and training the police and ensuring their loyalty to the Afghan government has long been extremely difficult. In Helmand especially, the police are proving less reliable - as well as more corrupt - than the Afghan Army.
The Afghan police are relatively badly paid - earning rather less than a Taliban fighter - and are said to earn extra cash from taking bribes from ordinary Afghans at official or often unofficial checkpoints.
Lt Col Wakefield, spokesman for Task Force Helmand, said the men who were killed had been mentoring a number of Afghan police officers.
He said they had worked and lived in the compound at a national police checkpoint for the past two weeks.
The attack did not come as a result of any breakdown or fight between British and Afghan forces, he stressed.
Col Wakefield said: "It is with the deepest sadness I must inform you that five British soldiers were shot and killed yesterday in Nad Ali district.
"Five British soldiers, five of our own, shot down in the course of their duty. They will not be forgotten."
Prime Minister Gordon Brown said the latest deaths were a "terrible loss".
He said: "My thoughts, condolences and sympathies go to their families, loved ones and colleagues. I know that the whole country too will mourn their loss.
"It is my highest priority to ensure our heroic troops have the best possible support and equipment - and the right strategy, backed by our international partners, and by a new Afghan government ready to play its part in confronting the challenges Afghanistan faces.
"Our troops deserve nothing less. My commitment to them remains unshakeable."
Tory leader David Cameron said: "I pay tribute, as will the whole country, to their professionalism and their courage, and send my condolences to their families and their friends."
Gen Stanley McChrystal, commander of the International Security Assistance Force, said he had spoken to the Afghan Minister of Interior, Haneef Atmar, who shared his regret for the incident.
"He gave me his assurance that this incident will be fully and transparently investigated," he said.
Lt Col David Wakefield, spokesman for Task Force Helmand, explains what happened
"We will not let this event deter our resolve to build a partnership with the Afghan National Security Forces to provide for Afghanistan's future."
A former commander of British forces in Afghanistan, Col Richard Kemp, said the shootings were a very worrying development.
He said: "It will undermine trust, certainly in the short term, until we establish exactly what happened. And it wouldn't at all surprise me now if there aren't a lot of soldiers, British soldiers in Afghanistan, with their fingers very firmly on the trigger when they're around Afghan police and military."
The British Military Police have launched an investigation. The local chief of the Afghan National Police (ANP) and the Afghan national director of security have also begun investigating at the scene.
There was a similar incident involving the deaths of two US personnel in 2008.
The British casualties were evacuated to the field hospital at Camp Bastion in Helmand by medical emergency response teams using Chinook and a US Black Hawk helicopters.
The Grenadier Guards have been advising the ANP and the Afghan National Army in training, tactics and patrol methods.
The deaths take the number of UK troops killed in Afghanistan since 2001 to 229.
This is the worst single incident in Helmand since 10 July, when five soldiers from 2 Rifles were killed by bombs near the town of Sangin.
This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.