The victim, identified as Budra Dhangda Majhi (40) had gone to the market at Khairput, about 70 km from here, when three ultras fired at him, Inspector In-Charge of Mudulipada police station Rajesh Chatria said.
The assailants disappeared into the nearby forest as the body of Majhi lay in a pool of blood, sources said.
Majhi, a former village head, had been working as a contractor for different construction works in the area, police said.
The red rebels targeted him as they thought that Majhi was passing on information about their activities to the police, they said.
The killing came about two months after police sub-inspector K C Rath was gunned down at the same market place on March 22, sources said.