Jo Cox, Labour MP for Batley and Spen, was left bleeding on the floor by her attacker. A man also suffered slight injuries, the BBC quoted eyewitnesses as saying.
A 52-year-old man was arrested near Market Street, Birstall, West Yorkshire Police said. The MP holds a weekly meeting with constituents nearby.
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Cox has been campaigning for Britain to remain in the European Union ahead of the country's June 23 referendum.
The MP was taken by air ambulance to Leeds General Infirmary, where armed police are stationed outside.
Eyewitness Hithem Ben Abdallah, said the MP was left lying and bleeding on the pavement after the incident.
West Yorkshire Police said in a statement, "At 12.53 on Thursday, police were called to a report of an incident on Market Street, Birstall, where a woman in her 40s had suffered serious injuries and is in a critical condition."
"A man in his late 40s to early 50s nearby also suffered slight injuries. Armed officers attended and a 52-year-old man was arrested in the area," the statement said.
"Police presence in the area has been increased as a reassurance to the community," it said.
Eyewitness Abdallah, was in a cafe next door to the library when he heard screaming and went outside.
"There was a guy who was being very brave and another guy with a white baseball cap who he was trying to control and the man in the baseball cap suddenly pulled a gun from his bag".
After a brief scuffle, he said the man stepped back and the MP became involved.
Abdallah said the weapon had "looked handmade" and a man who had been wrestling with the gunman continued even after seeing the gun.
He said, "The man stepped back with the gun and fired it and then he fired a second shot, as he was firing he was looking down at the ground."
"He was kicking her as she was lying on the floor", he said.
Jeremy Corbyn, the Labour leader, tweeted he was "utterly shocked by the news of the attack" and the thoughts of the "whole Labour Party" were with Cox.
Meanwhile, the campaign for Britain to stay in the European Union in next week's referendum said on Thursday it was suspending campaigning after the attack on Cox.
"We are suspending all campaigning for the day. Our thoughts are with Jo Cox and her family," the Stronger In Europe campaign said on Twitter.
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