Ajay Kumar Sahu (28) of District Voluntary Force (DVF) and a resident of Thakurpatna near here died during an exchange of fire with Maoists in Birikala forest on the border of Keonjhar and Angul districts, they said.
The security forces were carrying out a combing operation inside the forest when the encounter took place.
Sahu had joined the force in 2006 and had undergone training in Odisha's elite anti-naxal force - Special Operation Group (SOG), police said.
The jawan was accorded a guard of honour in the presence of senior police officers including DIG of police (western range), Yashwant Jethwa, after his body arrived here.
Sahu's family would be given Rs eight lakh as ex-gratia, Rs ten lakh insurance amount and special pension equivalent to full salary, Jethwa said adding one member of the family would be given a job.
Tension had prevailed in the town for sometime as no clear information was immediately available about the exact cause of the Jawan's death and the circumstances that led to the incident.
The situation was, however, brought under control soon, police said.