The civil guards were carrying out surveillance in Capbreton
Police at the scene
The two men were taking part in a joint surveillance operation with French police against Eta suspects.
Spanish PM Jose Luis Rodriguez Zapatero condemned the attack and said Spain was united by "deep disgust".
It was the first killing attributed to Eta since the group ended a ceasefire in June.
The two plain-clothed officers were shot from close range as they were getting into their cars outside a cafe at about 0930 (0830 GMT) on Saturday, in the Atlantic resort of Capbreton, police sources said.
Raul Centeno died and Fernando Trapero was seriously injured. Mr Zapatero described both men as "very young".
French Interior Minister Michele Alliot-Marie said the joint police operation was being carried out against Eta members "who come to French territory to seek refuge or to prepare operations".
She said the shooting apparently followed a "chance encounter" between the undercover agents and the suspects in the cafe.
After a confrontation the guards were murdered "in cold blood", Ms Alliot-Marie said.
French police are hunting three suspects - two men and a woman - who fled the scene, kidnapping a woman and driving her car north, before leaving her tied to a tree in a forest near Bordeaux, 160km (100 miles) away.
'Violence futile'
Mr Zapatero condemned the killers.
"Spanish society - united today by the sacrifice of Raul Centeno and Fernando Trapero shows its deep disgust with those who - scorning the most fundamental right, the right to life - are trying to frighten the citizens as a whole," he said.
Spanish Civil Guard Raul Centeno was described as "very young"
"Forty years of black terrorist history haven't been enough for them to realise the great strength of Spanish society. Hundreds of deaths and hundreds of victims haven't made them understand that they won't achieve anything with violence."
Eta uses parts of south-western France as a base, even though it carries out most of its operations against Spanish targets in Spain.
Spanish media said it appeared to be the first killing by Eta in France in decades.
The group wants an independent Basque state in northern Spain and south-western France.
It declared a ceasefire in March 2006 but broke it with a car bombing at Madrid airport in December 2006 that killed two people.
It formally ended its truce in June.
A Spanish civil guard was killed today and another seriously wounded in the town of Capbreton, on the southwest coast of France, in a shootout with suspected members of the Basque separatist group ETA.

The events occurred around 8:30 a.m. UTC, when the two plainclothes guards were entering in their car after leaving a coffee shop in the locality. They were then assaulted by two men who fired on them. Agent Raul Centeno Pallón died on the scene instantly, while Fernando Trapero Blázquez was injured seriously and is in a coma.

The civil guard were taking part in a joint surveillance operation with French police against ETA in southern France, when the two guardsmen were apparently detected and identified by the suspected ETA members. After the attack, the two suspected ETA members, and a woman who was with them, fled in a car. Having traveled about 70 kilometers, the two men abandoned the vehicle and robbed another car. The driver of the hijacked car was kidnapped, put in the trunk and finally left tied to a tree.

This is the first fatality blamed on ETA since it ended the last cease-fire in June, although it has carried out many non-fatal actions.

This incident comes a day after the National High Court of Spain issued arrest warrants to round up 46 of 52 Basque citizens prosecuted and sentenced previously on accusations of supporting ETA's separatist ideas.