The men suffered stab wounds when two groups clashed off Hobart's Salamanca Place in the Morrison St car park about midnight on Saturday, police said.
A 20-year-old man died from his injuries, while a 23-year-old man was still in hospital being treated for non-life-threatening injuries on Sunday morning.
Police said it appeared to be an "isolated incident" that was possibly linked to a previous incident involving a person from each group.
"The two victims were known to each other - we don't know if they were known to the offender," Detective Inspector Mark Burke told reporters on Sunday.
"We're working through a lot of CCTV footage, speaking to witnesses and trying to establish exactly how many people are involved."
But Dept Supt Burke emphasised that it could have been a targeted attack.
"Someone being murdered in a public place is never a nice thing but we believe it is potentially a targeted thing.
"It's not someone walking up to someone in the street and stabbing them."
He said the community should not be alarmed despite the stabbing, which happened metres away from the Salamanca Market, along the picturesque sandstone-lined tourist strip.
A 20-year-old has been charged with assault, with further charges related to the stabbing expected to be laid.Â
Another 17-year-old male is in custody as officers try to track down others caught up in the deadly melee.
Police are combing the area to locate the knife used as a murder weapon.
Some witnesses have approached police, with officers appealing to anyone with information to contact law enforcement authorities.
As with other states such as Victoria and NSW, the Tasmanian government instituted a four-month wanding trial that wrapped up in April, with more than 50 weapons seized, including 42 knives.
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