Rights groups say authorities have resorted to hundreds of extra-judicial killings during a 'clean-up' operation that began in 2013 in a city that has long been plagued by criminal, political, ethnic and Islamist violence.
A spokesman for the paramilitary Rangers said that the incident took place after they raided a hideout in city's west used by the killers of Hasnain Bukhari, a lawyer who was murdered in March this year.
"During the encounter four terrorists died whereas one solider of the Rangers was wounded," he added.
But the Muttahida Qaumi Movement (MQM), the city of 20 million's main political party which sits in opposition at the national level said in a statement that the four were party activists who had 'disappeared' months ago after being kidnapped by the Rangers.
Aminul Haq, a senior MQM leader told AFP that the families had so far identified three of the men and had lodged missing persons cases for them at the time of their disappearance.
The MQM has itself been accused of using extortion and murder to cement its grip on power - charges it denies.
Political observers believe the party, which was close to the country's powerful military establishment during the 1999-2008 rule of military strongman Pervez Musharraf, has since fallen out of favour.
Tensions have also been rising in recent months between MQM chief Altaf Hussain, who rules the party from London, and the country's powerful military establishment.
The rift widened in June, when Hussain, in an address to his workers accused the paramilitary Rangers of torturing and killing party workers and dumping their mutilated bodies on roadsides.
Haq said that the party would challenge the verdict in the Supreme Court.
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