Six police personnel were also injured in what the police claimed was an attack by the smugglers allegedly armed with sickles, axes and country-made weapons.
The task force and forest personnel, during a joint combing operation, spotted over 200 red sanders woodcutters involved in felling trees and they were asked to surrender.
"However, the smugglers, armed with sickles, axes, swords, country-made weapons and stones, attacked the police and forest personnel injuring six policemen," Deputy Inspector General of Police (Special Task Force) M Kantha Rao told PTI.
In retaliation, when the police fired in self-defence, 20 of the smugglers were killed and many others fled the scene, he said.
However, there was strong reaction from political parties in Tamil Nadu to the incident.
DMK, BJP, PMK and CPI claimed that poor labourers from the state were among the victims and asked the Andhra Pradesh government to "pursue lawful means" to check red sanders smuggling.
Claiming that they were innocent labourers from Tamil Nadu who were lured with higher wages to forests in neighbouring Chittoor, NDA ally, PMK chief Ramadoss said their being shot down without even an inquiry was unacceptable.
Dismissing claims of Andhra Pradesh police that they opened fire in self-defence, he said "it was a plain lie" and demanded a probe by a sitting judge of Supreme Court besides seeking relief to those killed and action against police officials.
DMK chief Karunanidhi, in a statement said, governments of both the states should announce relief to the families of the labourers killed in the exchange of fire.
"We are in touch with our counterparts in Andhra Pradesh. We are verifying if 12 of those killed were labourers from Thiruvannamalai and Vellore Districts," a top Tamil Nadu police official told PTI.
Red sanders, an endangered species also called red sandalwood, has a huge demand abroad, specially in China and Japan, and commands a good price.It is grown mainly in Seshachalam hill ranges spread across Kadapa, Chittoor and Kurnool in Rayalaseema region and parts of Nellore district in Andhra Pradesh.
However, majority of red sander smuggling takes place in Chittoor and Kadapa. The felling, transportation and sale of red sanders is prohibited in India.
The red sandalwood has huge demand abroad, specially in China and Japan, and commands a good price.
The mandate of the dedicated team (the special task force) is to curb smuggling of red sanders in Kadapa, Chittoor and Nellore districts, from where illegal felling and transportation of the precious and endangered wood had been widely reported.
Involvement of gang members of slain sandalwood smuggler Veerappan in illegal red sander smuggling in the state's Seshachalam forest cannot be ruled out, AP police had earlier said.
Since the TDP government came into power last year, police had intensified combing and seized hundreds of tonnes of the precious wood being smuggled and arrested the smugglers, mostly from neighbouring Tamil Nadu.
"Most of the smugglers are from Tamil Nadu...they regularly come in our area and cut red sanders which is transported in small vehicles to different places," Thakur said.
The red sander woodcutters come in 100s of numbers. There is a master organiser who sends the wood cutters.
There have been similar incidents last year also in which the red sander smugglers attacked police and forest personnel, who too retaliated resulting in killing of some of the smugglers.
Notably, a global e-auction of red sanders, a valued item in traditional medicines and woodcraft in Asia, had in December last year fetched Andhra Pradesh government Rs 991 crore on a sale volume of 4,160 metric tonnes.
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