The slain commander identified as Kamran Aslam Gujjar was killed in Karachi's Manghopir area after police acted on a tip off and launched a search operation, police said.
"He was badly wounded during an encounter in Manghopir area last night and taken to hospital. Before he died he confessed to his crimes and his association with Daesh," a senior police official said.
He was involved in grenade attacks, kidnappings, target killings and bank robberies and was a top commander of the IS in Karachi, the official added.
"One of the attackers and two policemen were severely injured during the encounter," the statement said.
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The attacker was a "trained Daesh commander" who had also worked for al-Qaeda in the subcontinent and had a head money of 2.5 million rupees on him.
Kamran confessed in his statement of being involved in the
target killings of Deputy Superintendent of Police Abdul Fatah Sangri and his driver and a constable in Malir in May last year, the statement said.