It identified the dead suspect as Ali Mahmoud Ali Abdullah and said an operation to arrest him took place in Awamiya town at 4:00 pm (local time) yesterday.
Gunfire was still sounding in the Gulf coast community last evening, a witness told AFP. He reported black smoke hanging over the town from tires burned in the streets by residents.
The interior ministry spokesman said that when officers raided a farm in Awamiya the suspect "opened fire and the situation was responded to, resulting in his death. In his possession was an automatic weapon and pistol."
"Available evidence showed he participated in committing a number of terrorist crimes, destabilising security and public order in Qatif," the spokesman said, referring to the surrounding Shiite-dominated region.
More From This Section
The witness reported seeing the body of a second individual lying in the street.
"People said an armoured vehicle hit him," the witness said.
The town of about 30,000 has been the scene of repeated incidents since 2011.
A week of unrest including gunfire, burning tires and explosions shook Awamiya after the execution of prominent Shiite cleric Nimr al-Nimr on January 2.
After the protests started, police issued a list of 23 wanted people. Many suspects on that list have already been detained or killed in shootouts.
Nimr and three other Shiites were among 47 people found guilty of terrorism and put to death on a single day. Among the others were Sunnis convicted of involvement in Al-Qaeda attacks that killed Saudis and foreigners in the kingdom about 12 years ago.
Saudi security forces have also been killed in attacks claimed by IS, whose leader has purportedly called Saudi rulers "apostate tyrants".