The encounter took place near Deshpur village after the lawbreaker, identified as Santosh Mallick (36), opened fire on the special police squad which retaliated in self-defence, P K Kanungo, an official of the squad said.
Mallick, who was hit in the leg by bullets, has been admitted to hospital and is out of danger.
No policeman was injured in the incident, he said.
Mallick is involved in about 50 crimes, including highway robbery and extortion cases, in Kendrapara, Jagatsinghpur, Jajpur, Rourkela and Cuttack areas.
A country-made revolver and live cartridges were seized from his possession, Kanungo said.
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