Five others managed to escape from the encounter site that falls under the jurisdiction of Warodha police station, they said.
The gang, on June 1, had kidnapped businessman Dhirendra Sahu and demanded a ransom of Rs six lakhs.
Acting on a tip-off, police surrounded the gang near the MP-UP border.
The dacoits allegedly refused to surrender and fired upon the police, who retaliated. Some of the slain dacoits hailed from Chitrakoot.
Two rifles, two country-made pistols and 40 live cartridges were recovered from the encounter site, police said.
