Vishwaranjan, the state police chief, said that the commander died when the Naxalites retaliated to a raid on an arms factory in Singamadagu, where the group has virtually established a parallel administration.
Thousands of people have been killed across 10 Indian states since the Naxalites, who say they are fighting for the rights of poor farmers and landless labourers, began targeting their insurgency in 1967.
The movement, which was officially banned in June after being designated as a "terrorist" group, is estimated to have between 10,000 and 20,000 fighters.
The clashes came just days after Manmohan Singh, the Indian prime minister, told a police conference the Naxalites were "the gravest internal security threat".
"I would like to say frankly that we have not achieved as much success as we would have liked in containing this menace," he said.
Singh said that the problem required a "nuanced" strategy to tackle it.
"Despite its sanguinary nature the movement manages to retain a section of the tribals and the poorest of the poor in many areas.
" It has influence among sizable sections of civil society, the intelligentsia and youth. It still retains a certain elan. All this adds to the complexity of the problem."