Gunmen killed a Saudi child and a Pakistani man during an attack on workers at a building project in restive eastern Saudi Arabia on Wednesday, the interior ministry said on Friday.

The gunmen tried to stop redevelopment work in the old quarter of the town of Awamiya, where authorities say Shia militants are hiding, said an interior ministry spokesman quoted by state news agency SPA.

They fired at security personnel and passersby, killing a two-year-old Saudi child and a Pakistani national and wounding ten others including six Saudis, he said.

"Workers were shot at by terrorist elements from the neighbourhood to obstruct the project and protect abandoned houses used to ... kidnap citizens," said SPA.

The attack took place in Qatif, an oil-producing province home to a large Shia population that has witnessed protests for more rights in Saudi Arabia which is majority Sunni.

Residents and activists told Reuters on Wednesday that several people were injured during clashes between security forces who had entered the old part of the town known as al-Musawara (the walled part) backed by bulldozers.

A local newspaper reported Saudi security forces shot dead a wanted man.

Authorities say the narrow streets of the old town, built during Ottoman rule more than 200 years ago, have become a hideout for Shia militants believed to be behind attacks on security forces in the region.

Awamiya has long been a flashpoint between the Sunni-led government and Shias complaining of discrimination. Tensions have increased since Nimr al-Nimr, a Shia cleric convicted of inciting violence, was executed a year ago.