A manager at the Chanming hardware company was seriously wounded by employee Liu Hanhuang, SEF deputy secretary-general Ma Shao-chang said.

Liu stabbed to death Shao Cheng-chi, 50, and Lin Yu-teng, 33, both of Taichung, Ma told reporters. Shao was Chanming vice-president.

Lin was Shao's nephew, who happened to visit his uncle at Chanming, a hardware manufacturer at Dongwan near Guangzhou.

The Chanming manager was identified as Lai Chen-jui, 40, also of Taichung.

Dongwan police arrested Liu on charges of murder, the SEF official said.

He said the SEF is helping the bereaved families to go to Dongwan as soon as practicable. They will take back the remains of their murdered relatives.

A semi-government organization, the SEF is in charge of conducting relations between Taiwan and China.

According to an initial police investigation, Liu had his right hand amputated after a workplace accident in September last year. He was on the payroll until he tried to sue Chanming for damages.

Even after he wasn't paid, Liu stayed at Changming's dormitory and was able to meet the management to press his case.

On Monday morning, Liu met Lai and Shao at their office to demand more compensation. They couldn't come to a compromise and decided to meet again after lunch. Shao's nephew, who came to visit his uncle, was also present at their unsuccessful meeting.

As Shao was leaving for lunch, Liu stopped him at the gate to the factory shortly before noon. Shao was accompanied by his nephew and Lai.

In a row that ensued, Liu stabbed Shao in the neck with a jack knife. Lin who tried to help his uncle was also stabbed in the neck.

They had their carotid arteries cut. Shao died in front of the factory gate. Lin was taken to hospital, where he was pronounced dead on arrival.

Lai was stabbed in the chest. Doctors at the hospital put him on a critical list.