Police said they were forced to intervene early on Saturday after a tram was stopped by a group of about 30 youths armed with baseball bats and iron bars.
The gang started a fire on the rails and stoned the vehicle, forcing the passengers inside to get out.
Later dozens of cars were set alight and police used tear gas in an attempt to control the violence. At one point one of the rioters fired a shot and police returned fire, a spokesman said.
The trouble followed a hold-up in a casino in nearby Uriage-les-Bains by two armed men in the early hours of Friday.
As police chased the suspects, they apparently opened, wounding an officer.
In the ensuing shootout with police, one suspect was shot in the head while the second man fled into La Villeneuve, where police helicopters flew overhead for much of the night in an attempt to locate him.
Jean Philippe, a prosecutor, said the police had acted in self-defence when they killed Karim Boudouda, but an autopsy will be carried out on his body on Saturday.
No casualties were reported on Saturday, but police and government officials have a lingering fear that the poor suburbs arounf France's major cities could explode into violence as they did in 2005.
The deaths touched off almost three weeks of riots across the country, often in the rough suburbs that ring France's major cities.
About 300 buildings and 10,000 cars were burned, while 130 police and rioters were hurt in the violence .
The high-rise neighbourhoods, built in the 1950s and 1960s to house a growing population of industrial workers and immigrants, suffer due to high unemployment and poor public services.
Police unions have raised concerns about a rise in violent crime spurred by the recession and a resurgence of drug trafficking in some areas.
"Police are at breaking point," Daniel Chomette, the regional union chief, said as he called for reinforcements.