A UN source told the BBC that the death toll had risen to 14, and another 45 people had been injured.
"
I was shot in the chest and
the left arm and I jumped out of my tractor and hid in a waste-water pipe beside the road
"
Seng Oudone, eyewitness
A spokesman for the Lao foreign ministry said soldiers had been deployed to "scour the countryside" and find the bandits.
There are reports that the local hospital is not coping well with the number of casualties, with bed space and medical staff in short supply.
Robbed and murdered
The ambush happened near the town of Vang Vieng, a well-known beauty spot about 170 kilometres (110 miles) north of the capital Vientiane.
As many as 20 gunmen sprayed the bus with bullets, killing at least eight Laotian passengers.
The two foreigners appeared to have been killed as they cycled past the bus while the attack was taking place.
The bus was travelling from the town of Kasi to Vientiane, and had slowed down to pass a small village when the attack occurred.
New Zealand journalist Hannah Belcher told the BBC's East Asia Today that two of the bandits boarded the bus and demanded the passengers hand over their jewellery and money, before randomly shooting people.
Seng Oudone, a 27-year-old resident of Pakpoh village, said he was driving a tractor to his farm at the time of the ambush.
"I saw about 20 people firing guns. I was shot in the chest and the left arm and I jumped out of my tractor and hid in a waste-water pipe beside the road," he said.
The nationalities of the victims was still unclear.
"Identification is proving very difficult because the insurgents stole their identity cards and baggage," said a spokesman for the French embassy in Vientiane.
Past violence
The area around Vang Vieng was considered dangerous because of the risk of attacks by Hmong anti-government rebels, who have been fighting the government ever since the current regime came to power in 1975.
But the attacks have lessened in recent years, encouraging an increasing flow of foreign visitors, says the BBC's South East Asia correspondent Jonathan Head.
Renewed fears over security could drive many tourists away, our correspondent says.
"Tourists are frightened of what has happened, because obviously the bandits are on still on the loose," Ms Belcher told the BBC.
Tourism has become a vital source of income for Laos, one of the poorest countries in Asia.