The attack took place last evening in Pishan county.
Ten people were injured in the attack, five of whom were declared dead in the hospital, an official news portal of the Hotan government said.
Police shot dead three attackers, Hong Kong-based South China Morning Post quoted the news portal as saying.
Social order has been restored and an investigation is being carried out, the report said.
Xinjiang, bordering Pakistan-occupied Kashmir (PoK) and Afghanistan, has been on the boil for several years over Uighur protests against the large-scale settlements of Han Chinese from different parts of the country.
China blames Uighur separatists from the East Turkistan Islamic Movement (ETIM) for the attacks in the region, which has over 10 million Uyghur population of Turkik-origin Muslims.
In December, four knife-wielding men attacked a Communist Party office in southern Xinjiang's Hotan region and set off an explosive device, killing one person. Four assailants were also shot dead.