The shocking incident occurred in the Abdullapurmet Tahsil Office in Ranga Reddy district on the outskirts of Hyderabad.
Vijaya Reddy, a tahsildar or Mandal Revenue Officer (MRO), was in her chamber when a man walked in, and while talking to her, poured petrol and set her ablaze at around 2 p.m.
The official died on the spot while two employees who tried to save the tahsildar were injured.
The assailant, who has been identified as K. Suresh, too suffered burn injuries and ran out of the office, the police said.
Rachakonda Police Commissioner Mahesh Bhagwat said the accused, who sustained 60 per cent burn injuries, was shifted to the government-run Osmania Hospital in Hyderabad.
The officer said the murder took place over a dispute relating to Suresh's seven-acre land in Baharam village. There was some dispute between Suresh and his tenants and he was angry over the MRO not doing anything to sort out the issue.
The incident occurred during lunch break when there were not many visitors in the office.
The body of Vijaya Reddy has been taken to the Osmania Hospital for autopsy. A large number of revenue officials gathered at the hospital.
The Abdullapurmet mandal or block was carved out recently and Vijaya Reddy was its first MRO. She is survived by her husband and two children.
The incident sent shock waves among the government officials and evoked all-round condemnation. The employees began protest, demanding security.
An association of revenue officials called for protests across the state on Tuesday to demand severe punishment for the guilty.
State Education Minister Sabita Indra Redddy, who hails from Ranga Reddy district, condemned the gruesome murder. She said if anybody has any complaint against any government employee, he should approach the higher officials.
Director General of Police M. Mahender Reddy condemned the incident and said that such a barbaric act was totally unacceptable in a civilised society.
"We shall bring the culprit to book and ensure that the severest punishment is awarded at the earliest. Justice will be rendered to the victim and her family members," he said.
( With inputs from IANS )