According to police, the slain outlaws had martyred three policemen.
Police said they were taking Pervaiz alias Peecho Audh and Abbas alias Bassu Audh for identification of some other outlaws.
While the police party was on its way, it was attacked by the accomplices of the dacoits who wanted to rescue them. They opened fire on the police who also retaliated.
As a result, both dacoits and another attacker were injured in the trade of fire.
Then the attackers fled away.
Police shifted injured dacoits Pervaiz and Abbas to a hospital where they succumbed to their injuries.
Police have launched a search operation in Manga Bypass to hunt down other accused.
Both the deceased dacoits were record criminals involved in cases of dacoities, kidnapping, and rape.
Last year, they opened fire on patrolling police constables Abad Dogar and Adil Hussain in Manga Bypass.
They also martyred constable Qaiser in Sundar area.
Police have shifted the bodies of both dacoits to the city morgue for post mortem.
Separately, two dacoits were injured in another police encounter in LDA Park in Ghalib Market, Lahore.
According to Model Town Superintendent Police Waqar Kharal, the SHO of Nishtar Colony during patrolling beckoned to two suspected motor cyclists to stop.
But instead of pulling over, the accused opened fire on the police party. The patrolling party also retaliated.
Resultantly, both the accused identified as Waseem and Sajid got injured.
SP Kharal said that the dacoits were record criminals and they were fleeing after committing dacoities in the areas of Ghaziabad and Ghalib Market.
Meanwhile, a dacoit was killed by the police firing in the limits of Dhamyal police station in Rawalpindi.
Reportedly, four dacoits were fleeing after snatching a car.
Seeing that the police were chasing them, they opened fire on them.
Police also opened fire on them.
A dacoit identified as Naqeeb Ullah was hit by the police bullet and died on the spot.
Police managed to arrest the other three accused: Shaukat, Hashim and Kamran.
They also recovered weapons and the stolen car from their possession.
Police said that the accused killed a driver of cash delivery van in Dhamyal area one and a half months ago during a dacoity attempt.
The accused had looted Rs8.3 million from the delivery van.
Another robber was killed in a police encounter in Galyana area of Kharian.
Reportedly, approximately 7 to 10 dacoits stormed into a stationery store in Galyana on Saturday night and tried to loot cash.
But police reached the place in the nick of time.
A trade of fire between dacoits and police ensued in which an outlaw was killed and three policemen including ASI sustained injuries.
An FIR of the case was registered on the complaint of Galyana police station SHO Rai Fiyaz.
Reporters Rana Faran Yameen, Abid Chaudhry, Usman Javed and Syed Tanveer Naqvi