The area was being surveyed by military helicopters as two explosions were heard from inside the building.
According to the Inter-Services Public Relations, three terrorists were killed in the ensuing operation.
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A heavy contingent of police and army has reached the site while the university road has been closed for traffic. The university hostel usually houses almost 400 students, but most had gone home for a long holiday weekend and only about 120 students remained.
Police said at least three militants opened fire at security guards near the gates of the Agriculture Training Institute, injuring one of them before making their way inside and targeting the student accommodation.
The ISPR said the terrorists were in contact with their handlers in Afghanistan during the attack.
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He said six students, a security guard and two civilians were killed in the attack.
Taliban claimed the responsibility, saying in a message from spokesman Mohammad Khorasani that they had targeted a safe house of the military's Inter-Services Intelligence agency. "We took them out with us and admitted them to the hospital", said Ariful Haq, adding that around 120 students live in the hostel but most had gone home due to the long weekend.
The Taliban is known for committing attacks on schools. In it, one of the gunmen raced into a building and firing his weapon as he went room to room searching for students.
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As per reports from Khyber Teaching Hospital, three bodies and 17 wounded were brought to the medical facility. Peshawar, close to the Afghan border, has seen some of the worst violence during the Taliban insurgency in recent years.