The attack on the consulate in Mazar-i-Sharif comes after Prime Minister Narendra Modi's much-hyped diplomatic outreach to arch-rival Pakistan following his first visit to Afghanistan.
"We are being attacked," an Indian consulate official told AFP by telephone from inside the heavily-guarded compound. "Fighting is still going on."
The official, who was hunkered down in a secure area within the complex, said all consulate employees were safe and accounted for.
No group immediately claimed responsibility for the attack, which comes just a day after a deadly assault by suspected Islamist militants on an Indian air base near the Pakistan border.
A local police spokesman in Mazar-i-Sharif, a city in the relatively tranquil province of Balkh, said security officials had cordoned off the area where sporadic gunshots were ringing out after a series of explosions.
Another official told AFP that government forces had launched an operation to gun down the assailants, but it was not clear if they had managed to breach the consulate.
Vikas Swarup, a spokesman for India's ministry of external affairs, told AFP that no Indian casualties had been reported so far.
The consulate assault is the latest in a series of attacks on Indian targets in Afghanistan.
Nine civilians, including seven children, were killed in August 2013 when suicide bombers targeted the Indian consulate in the main eastern Afghan city of Jalalabad, detonating an explosives-packed car.
The assault comes a week after Modi paid a surprise visit to Pakistan, the first by an Indian premier in 11 years.
The surprise visit immediately followed a whirlwind tour of Kabul, where Modi inaugurated a smart Indian-built parliament complex built at an estimated cost of $90 million, and gifted three Russian-made attack helicopters to the Afghan government.
A day after his visit, Pakistan's powerful army chief General Raheel Sharif travelled to Kabul in a bid to prepare the ground for fresh peace talks with the resurgent Taliban.
Afghan President Ashraf Ghani on Thursday said both sides agreed to hold a first round of dialogue between Afghanistan, Pakistan, US and China on January 11 to lay out a comprehensive roadmap for peace.
Pakistan -- the Taliban's historic backers -- hosted a milestone first round of talks in July but the negotiations stalled when the insurgents belatedly confirmed the death of longtime leader Mullah Omar.
