Shiraz Zikri, the brother of Ghaffar Zikri who is a key figure in the gang war, was killed during a joint operation conducted by police and Rangers' personnel in the troubled Lyari area of Karachi.
The situation became tense after the killing and rival gangs engaged in armed clashes in the Jhat Par market in Lyari using automatic weapons and hand grenades.
At least 16 people, including five women and two children, were killed in three hand grenade attacks, officials said.
The Lyari area has been plagued by an ongoing gang-war between two rival groups.
The shops and business were shut down in the area and people remained confined to their homes.
Karachi, a city of 18 million people and Pakistan's economic hub, has been plagued by sectarian, ethnic and political violence for many years.
The city is also frequently attacked by militants especially the Taliban who last month set off a bomb that killed 12 policemen.
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