The national police force yesterday said the attacker had been approaching a police station in the city of Constantine when he was shot by the officer.
"An officer who was in front of the police headquarters, underneath a building that is home to a dozen families, responded energetically and heroically after several warnings, targeting with precision the explosive belt worn by a terrorist," police said in a statement cited by APS news agency.
Two officers were injured in the explosion, according to local reports.
Prosecutors have opened an investigation into the "terrorist attack," police said.
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Last week the army said it had killed 14 "terrorists", a term used to refer to armed Islamists in Algeria, during a major search operation in the Bouira region, 125 kilometres (77 miles) southeast of the capital Algiers.
Despite the adoption in 2005 of a charter for peace and reconciliation, designed to turn the page on the brutal 1991-2002 Algerian civil war that left 200,000 people dead, Islamist groups remain active in the country's south and east, largely targeting security forces.