The encounter took place near Kanheipur village in Ganjam district, about 60-km from here.
Souri Nahak (32) of Krushna Saranapur near Keshapur and his associate Mitu Pradhan (29) of Surya Narayanpur near Ganjam, received bullet injuries on their legs following the exchange of fires.
Police recovered two rifles and five rounds of live ammunition from them after the incident, said SP (Ganjam) Asish Singh.
Two police personnel also received minor injuries in the exchange of the fire. The duo fired at least four rounds at the police party.
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After getting information from Banapur police about their movement towards Khallikote, police was checking all the vehicles passing in the area.
"They were trying to escape by opening fire at us when we detained their vehicle", said inspector in charge, Khallikote police station, Bibekananda Swain.
Police fired at least six rounds in retaliation, he said.
Describing the duo as anti-socials and involved in several heinous crimes, police said they were wanted by the police in Ganjam, Khurda and Nayagarh districts.
Similarly Mitu, his associate, was also involved in at least 25 different criminal cases, including murder, dacoits and robberies. "We are verifying his other cases pending against them in some other police stations", said Swain.
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