The so called "green on blue" attack happened at Kandahar airfield when NATO advisors, who had completed a training session with their Afghan counterparts, were returning to their base, NATO said.
"Romanian soldiers... returned fire in self-defence and killed the gunman," the statement said, adding that the attacker was a member of the Afghan National Civil Order Police.
A Romanian soldier was wounded in the attack," NATO said.
Police spokesman Abdul Hamid Mubarez told AFP that foreign troops opened fire on their forces after a "verbal clash" with them.
He said one police officer was killed at the scene and another who was wounded died later in hospital.
No one immediately claimed responsibility for the attack but Western officials say most insider attacks stem from personal grudges and cultural misunderstandings rather than insurgent plots.
The incident comes as the United States ponders sending more American troops to Afghanistan and it came at the end of a difficult week for foreign forces in the war-torn country.
Two US soldiers died when a Taliban suicide bomber rammed a vehicle filled with explosives into their convoy in Kandahar on Wednesday.
The next day a Georgian soldier was killed in a Taliban suicide bomb attack on a convoy of foreign forces near Bagram Airbase.
In June, three US troops were killed and another wounded in an insider attack during a joint operation in Afghanistan's eastern Nangarhar province.
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