Mariano Diaz, the governor of the surrounding Huehuetenango department, confirmed the incident with Guatemalan radio.
 
Elected mayor of Santa Ana Huista in 2003, Velasquez, 29, was not seeking re-election.
 
He was campaigning for Rolando Morales of the rival Grand National Alliance party to succeed him.
 
The mayor is the latest in a stream of politicians, activists and workers from different parties who were murdered this year as drug traffickers and former paramilitaries fight over the elections for president, congress and municipalities.
 
Velasquez was the 19th member of presidential favourite Alvaro Colom's National Unity for Hope party (UNE), which is struggling to rid its ranks of the influence of organised crime groups and drug gangs, to be killed since last year.

Nobel Peace Prize winner Rigoberta Menchu's party has suffered at least three gun attacks this month.

Guatemala, Central America's most populous nation and one of the most violent countries on the continent, is still suffering the after-effects of its 1960-1996 civil war which left nearly a quarter of a million people dead or missing.
 
Last year almost 6,000 people were murdered in common crime or gang feuds which political scientists blame on civil war era paramilitaries now used by organised crime gangs.