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Blasts and heavy gunfire were heard from inside the campus where a poetic symposium was in progress to mark the death anniversary of Bacha Khan who died on January 20, 1988.
Pakistan Tehrik-e-Insaf Party leader and provincial lawmaker Shaukat Yousafzai said that 25 people, including a professor, were killed and around 50 others injured in the terrorist attack on the University.
The injured were shifted to hospital. An emergency has been declared in all hospitals in the town. All schools have been closed in the area.
Today's attack comes a little over a year after Taliban militants massacred over 150 people, mostly students, in an assault on an army-run school in Peshawar in December, 2014.
Yousafzai said between four to 10 attackers were involved in the attack.
"Such cowardice attack could not shake the resolve of the Government in the fight against terrorism," he said.
Soon after the attack, a large contingent of security forces rushed to the site and started evacuating students.
Pakistan Army troops also rushed to the University from Peshawar and started operation.
Army spokesman Lt Gen Asim Salim Bajwa tweeted that four terrorists were killed during operation launched by security forces to clear the University.
"Snipers killed 2 more terrorists on roof top, total Terrorist killed so far 4. All buildings & roof top taken over by Army...," he tweeted. "Clearance of university block by block continues by Army troops."
Earlier, two terrorists who were firing from inside the university block were shot and killed by the army. The terrorists were contained in two blocks within the university and troops, commandos are participating in the operation.
The army said that operation has been completed and all the terrorists were killed by the security forces.
It said clearance operation is underway in the campus.
Army helicopters are hovering over the University.