Daniyal Hassan, a reporter for the Pakistani TV channel Dawn News, told Al Jazeera that the security forces were using armoured vehicles to try and evacuate people trapped inside.
He, however, said that officials have not been able to take all of the injured out because the situation was still critical.
A security official said the police officers were preparing for training when the attack began.
Witnesses said the attackers had entered the academy disguised as police officers.
The attackers reportedly hurled grenades at the police and TV footage showed several police officers bleeding and lying on the ground.
Our correspondent said the latest attack would raise fresh questions about the ability of the country's interior ministry to provide security.
Imtiaz Gul, a Pakistani political analyst, said the attack underscored the "ill-preparedness" of police and paramilitary forces in the country.
"The kind of attack that took place is very, very difficult to pre-empt. There are people who came prepared to kill. On the other side, you see the kind of response from paramilitary forces.
"The entire country has been paying the price for this ill-preparedness," he said.
Pakistan has faced scores of attacks in recent years and, although Lahore has largely escaped the violence, it has not been immune.
Earlier in March, armed men brazenly ambushed Sri Lanka's cricket team in the city, killing six police officers and a driver, and wounding several of the players.