Veerappan, believed to have ties with Tamil fighters and accused of more than 100 cases of murder, hit world headlines in 2000 when he held film star Rajkumar hostage for 108 days.
"Three of his aides have also been killed," an official said, adding the shootout occurred on Monday.
Veerappan, who operated from dense jungles in southern India, was once seen by local people as a modern day Robin Hood and eluded troops and police in vast jungles straddling the states of Karnataka and Tamil Nadu for more than a decade.
In December 2002, a regional politician was found dead after
In 2002 people gather around
one of Veerappan's victims
three months as Veerappan's captive.
An audio cassette message from Veerappan, a Tamil from Tamil Nadu state, denied responsibility for the death of H Nagappa, 66, a former minister in the state government of Karnataka, and blamed police for a shootout.
The authorities dismissed the charge.
Famed for his long, twirling moustache and the military
camouflage he wore, Veerappan was also accused of killing
thousands of elephants for their tusks and smuggling sandalwood and ivory worth millions of dollars.