The encounter took place near Janagaon in Warangal, around 80 kms from here, when Ahmed and four of his associates tried to snatch weapons from the escort police while they were being brought to a court in Hyderabad from Warangal Central Prison, police inspector V Satish said.
The police are still trying to ascertain the details of the incident, he said.
Viqaruddin Ahmed, alias Viqar, was a 'terror operative' and founder of local militant outfit TGI, which is suspected to be behind various shootouts and killings of police personnel in Hyderabad.
Viqar, in his mid 30s, was elusive since December 2008 after attacking policemen here in which two security personnel were killed and as many injured. He was arrested along with five of his associates from different parts of Hyderabad city on July 14, 2010.
According to police, Viqar, who was also responsible for killing a police constable in Ahmedabad in 2007, had taken shelter in that city for some time. He used to come to Hyderabad prior to the anniversary of Mecca Masjid blast and attack security personnel to avenge the police firing.