Arjun Dass, a leader of India's ruling party, was assassinated here today in a continuation of the sectarian violence involving Sikhs and Hindus.

Witnesses said Dass, 46, a Congress (I) Party municipal official, and his police bodyguard, Vijender Singh, were shot to death and five other persons were wounded when two unidentified gunmen sprayed at least 29 shots into an auto parts shop Dass owned in a crowded marketplace in south Delhi.

The gunmen escaped on a waiting motor scooter, the witnesses said.

The assailants reportedly yelled, "Long live Khalistan," a reference to the separate state that Sikh radicals have proposed be set up in northern India.

Dass, a Punjabi Hindu, was a close friend and associate of Sanjay Gandhi, the late younger brother of Prime Minister Rajiv Gandhi. Dass had been named in a civil liberties group's report as an instigator of violence against Sikhs during the riots in November after the killing of then prime minister Indira Gandhi by her Sikh bodyguards. About 2,700 persons were killed and thousands made homeless in the riots.

Like the murder in July of Lalit Maken, a Congress (I) member of Parliament, Dass' killing appeared to be part of a well-organized campaign to avenge the deaths of the Sikhs killed in the November rioting, said police sources who pointed out that the pattern of the killings was similar. Police have blocked all exit points from New Delhi, and a manhunt has been launched to capture the assassins.

Prime Minister Gandhi and Home Minister S.B. Chavan, both of whom visited the hospital where the bodies were taken after the shooting, have asked police officials to review the law and order situation in New Delhi, the United News of India reported.

Today's attack was one of many in an upsurge of violence since Gandhi reached an accord with Sikh leaders on July 24. One of the signers of the accord, Harchand Singh Longowal, was assassinated on Aug. 20 by radical Sikhs.

"Terrorism, especially of the Punjab kind, has affected citizens of Delhi in many ways," the daily newspaper Statesman said today. "It has taken thousands of policemen in the city out of their normal duty of protecting citizens, and put them on the job of acting as bodyguards for sundry VIPs."

A radical faction of the mainstream Sikh party announced today that it would not take part in the Punjab State elections scheduled for Sept. 25.