At least 45 persons of Chhachina, Belapada and Kandara villages were arrested allegedly for their involvement in the riot. They were produced in the local court.
Chief minister Naveen Patnaik said the situation was fast returning to normal with immediate intervention.
Road communication between Aska and Bhubaneswar was disrupted for several hours as the villagers, mostly women staged road blockade at Chhachina, Digapada, Matha Berhampur, Khajapalli even though the additional director general of police Sanjeeb Marik visited the area to study the situation.
"The situation is under control and no fresh incident was reported," said SP (Ganjam) Rajesh Pandit.
The prohibitory orders which was clamped in the area during the night hours fearing more incident was lifted this morning.
"We are assessing the situation and will re-impose the prohibitory order in the night hour if the situation forces us," said district collector Krishan Kumar.
The state government has ordered administrative inquiry into the incident by the revenue divisional commissioner (southern division).
Around 200-armed villagers of Chhachina and nearby villages went on rampage in the areas (Marathi Basha) where Aregola, a Telegu-speaking community, is settled on the outskirts of the town.
Besides lynching two persons, the mob also set ablaze several houses. Long-standing dispute between them was stated to be the fallout of the incident.
Some of the victims alleged that the armed mob rampaged their settlements without any provocation as the youths of Aregola used to allegedly indulge in anti-social activities in the area.
"They used to pass remarks against some college-going girls, sell liquor in the area and also attack frequently on the innocent villagers in the town," said a villager in Chhachina village on the condition of anonymity.
He said the nearby villagers had appraised the district administration as well as the police about their activities, some days ago and sought action against them.
But no action was taken against them, he alleged.
The government however put the sub divisional police officer (SDPO), Chhatrapur P K Jali and inspector in-charge (Kodala) under suspension for "not performing their duties" and announced ex-gratia to the victims of the riots.
Meanwhile Soubhagya Kumar Swain, a police inspector was appointed in Kodala police station as the new inspector in-charge, sources said.