The shoot-out erupted when police hunted down the armed gang that is alleged to have stormed a police station in Eastern Cape province and killed five officers and a retired soldier on Wednesday.
"The group which uses a church as a hiding place was cornered inside the church premises," the Hawks police investigative unit said in a statement.
"A gun battle between suspects and police ensued which left seven suspects dead and a task force member injured in the legs."
Local media said the shoot-out had occurred outside the Mancoba Seven Angel's Ministries church in Nyanga village.
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The gang had stolen weapons from the police station.
Attacks on police are common in South Africa, but the killing of five officers provoked national outrage.
"In the past, people would just accept it and move on but this time they are saying no," President Cyril Ramaphosa, who took office last week, said.
"We want answers and we want arrests. When there is a disaster like this it should be attended to with maximum speed."
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