Bijayakanth alias Chhotu and his associate Rajesh Tirkey were arrested after a brief encounter from Lodhabasa forest, Inspector General of Police (Western Range) Y K Jethwa said.
Two country-made pistols, eight rounds of ammunition, five mobile phones, four SIM cards, a PLFI leaflet and a camera were seized, he said.
Bijayakant was allegedly involved in the killing of Hardeep Singh, a contractor and local BJD leader in Rajgangur area.
Last month 11 PLFI members were arrested.