Yasmin Sherani, a corporator and vice president of state Congress's women's cell, was shot from behind, Ratlam Superintendent of Police Dr Ashish said.
She was rushed to a hospital in Indore after initial treatment at a local hospital.
Following the attack, her supporters went on a rampage, ransacking shops in the marketplace.
Two Bajrang Dal activists, Kapil Rathore and Vikram Rathore, were shot at, and their associate, Pukhraj, was stabbed by unidentified persons.
Ujjain range Inspector General (IG) Madhu Kumar has reached Ratlam to monitor the situation. Additional police force has been deployed as tension is still prevailing in the city.