At least 22 people were injured in "terrorist" attack
Prime Minister Atal Behari Vajpayee said it was "a warning to the entire nation" and that India would wage a "do or die" war against terrorism.
The motive remains unclear. No group has admitted carrying out the attack - which Indian Home Minister LK Advani said was similar to an October strike against the Kashmir state assembly by separatist militants.
But he also suggested that it could be related to the 11 September attacks on the United States - and Health Minister C P Thakur was quoted as saying India had received warnings of a possible attack following the defeat of the Taleban regime in Afghanistan.
Pakistan - accused by India of supporting Kashmiri separatists - quickly condemned the attack.
Indian government officials said all five gunmen had been killed along with six police officers and a gardener.
No members of parliament or ministers were hurt, but Vice-President Krishan Kant had a narrow escape.
One of the gunmen fired at the door to his office, a spokesman for the governing party said.
Mr Kant was saved by the intervention of a parliamentary official who chased the attacker but was himself shot dead, the spokesman said.
The militants, armed with guns and hand grenades, burst into the red sandstone parliament complex shortly before noon local time and started shooting.
The gunbattle raged for an hour as police and security forces rushed to the area.
'Human bomb'
According to witnesses, one of the gunmen blew himself up in an apparent suicide attack.
Two hours after the gunbattle, officials exploded a bomb found in the complex in a controlled detonation.
Shortly after the attack, the prime minister appeared on television to announce that he and all his ministers were safe.
"This was not just an attack on the building, it was a warning to the entire nation. We accept the challenge," Mr Vajpayee said.
"We have been fighting terrorism for the past two decades," he said. "The fight is in the last stages. It will be a do and die battle."
Member of parliament A P Jeetendra Reddy told the Reuters news agency: "It's really a bad day for India. For something like this to happen in parliament is a disgrace. This is supposed to be a highly secure and sacred area."
Mahesh Rangarajan, a political analyst, told the Associated Press that it was "the most serious breach of top security in Delhi since [Prime Minister] Indira Gandhi's assassination in 1984."
The government has ordered that security be stepped up at state assemblies throughout India.
Security forces are also standing guard around the prime minister's residence and government ministries, the defence minister said.
Live on television
About 100 MPs were in the building at the time of the attack.
Witnesses spoke of disbelief and confusion as the first shots were fired.
"I saw many people firing at the same time. I couldn't make out who was who," he said.
"I couldn't understand who the terrorists were and who the police were. My mind went blank."
Hundreds of rounds were fired as police crouched behind cars, trees and the corners of the building.
The dramatic standoff was broadcast live on television stations.
The gunmen, wearing commando uniforms and carrying bulky bags, fired at the main entrance for MPs, witnesses said.
As many as 30 people are reported to have been taken to hospital. A cameraman was said to be among at least 22 people injured.
Britain was one of the first countries to condemn what is believed to have been the first attack on the highest legislative body in the world's largest democracy.
Foreign Secretary Jack Straw called it a "brutal terrorist attack."
A spokesman for the US embassy in Delhi said it was an "outrageous act of terrorism."
European Union External Relations Commissioner Chris Patten said he was "appalled".
"Terrorism is a threat to freedom everywhere and requires a global response," he said in a statement.