The latest clashes began on Sunday night in the city's Muslim-dominated area of Chuhapora soon after Muslim resident Rasool Ghanchi was hacked to death outside a local theatre, said PC Thakur, the joint commissioner of police in Ahmadabad.
As word spread, a riot broke out in another Muslim-dominated area, Kalupur - the city's main business district, Thakur said.
Two Hindu youths on a motorbike were dragged to the ground and one was burned to death a few metres from the local police station, he said. The other was stabbed and later admitted to a hospital.
"Since last night, we have raised security in the... city and four people have been rounded up in connection with burning alive the Hindu youth," Thakur told The Associated Press.
An indefinite curfew was imposed in parts of Ahmedabad following the violence.
Six people were injured in the rioting and three were in a serious condition, police told French news agency AFP.
Sunday's sectarian unrest came a week after three Muslims were killed and 35 injured in riots set off by a dispute after a ball landed in a Hindu temple during a children's cricket match.
The state government has been accused by national and international rights groups of turning a blind eye to the violence.
Gujarat has seen sporadic communal incidents since last year when more than 2000 people - mostly Muslims - were killed in riots, triggered after 59 Hindus were burnt to death in a train fire allegedly started by a Muslim mob, on 27 February, 2002.
The state government, run by Prime Minister Atal Behari Vajpayee's nationalist BJP party, has been accused by national and international rights groups of turning a blind eye to the violence.
In an interview with the Financial Times of London last week, Vajpayee pledged to punish the perpetrators of last year's riots.
“Our public, media and judiciary are following it closely. Justice will not only seen to be done; it will be done,” he said.
But London-based rights group Amnesty International has called for immediate action to end illegal detentions and torture, particularly of Muslims, in the region.
In a new report - Abuse of the law in Gujarat: Muslims detained illegally in Ahmedabad – Amnesty chronicles the alleged persecution of Muslims during and after last year’s riots.
“Information contained in this report points to a systematic pattern of human rights violations being carried out in Ahmedabad with the support of the state government and institutions of the criminal justice system with little or no chance of redress for its victims,” Amnesty said in the report released last week.
“It also reinforces concerns about discrimination against Muslims within the criminal justice system in the state.”
A majority of those arrested for the riots have been Muslims, many of whom have pleaded their cases be heard outside of Gujarat as they felt they were being denied justice.
In one of the bloodiest incidents during the riots, a group of Hindu men allegedly attacked the Best Bakery on 1 March, 2002 with petrol bombs and knives, burning to death 12 Muslims.
Twenty-one men charged with the attack were acquitted on 27 June after 35 witnesses retracted statements.
“Information contained in this report points to a systematic pattern of human rights violations being carried out in Ahmedabad with the support of the state government"
A key Muslim witness, Zahira Shaikh, 19, approached the National Human Rights Commission about holding a new trial outside Gujarat because she lied in court after death threats by local leaders of the BJP party.
The commission asked the Supreme Court to look into the matter. The court reprimanded the state government and even asked Chief Minister Narendra Modi to quit if he could not protect Muslims.
Amnesty said its report was prepared after discussions with lawyers and rights activists, most of whom had been harassed and threatened, and not based on interviews in Gujarat as it was still awaiting permission from the Indian government to visit the state.