Police said Premachandra, 55, died of multiple gunshot wounds along with the two bodyguards in the short but bloody fight after a rival faction within the ruling alliance opened fire.
At least 28 firearms, including automatic assault rifles, had been involved, police said.
Premachandra's arch rival, legislator Duminda Silva, was also wounded in the confrontation and was in intensive care after surgery to remove two bullets from his brain, hospital sources said.
The shooting has seriously embarrassed the government, which is yet to comment, and police said no arrests had been made.
The Asian Human Rights Commission (AHRC), based in Hong Kong, said Saturday's killings underlined that the brutal and sometimes deadly nature of Sri Lankan democracy.
"This violent conflict between two prominent members of the ruling regime points to the type of politics prevailing in the country," the AHRC said in a statement.
Poll results released on Sunday showed Rajapakse's United People's Fre