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A police officer narrowly escaped serious injury when a bullet was found lodged in his radio after an exchange of fire during an attempted arrest.
A 29-year-old man, named locally as Mark Duggan, a father of four, was shot dead by police in the incident in Tottenham, in north London.
Police were trying to arrest Mr Duggan, who was a passenger in a minicab when the incident took place on Thursday evening. A non-police issue handgun was recovered at the scene and an officer's radio, which appeared to have a bullet lodged in it, was also found.
The attempted arrest was part of a planned operation under Trident, which deals with gun crime in the black community.
"Both the radio and the handgun are being sent for expedited forensic tests," an spokesman for the Independent Police Complaints Commission (IPCC) said.
London's Evening Standard newspaper quoted Mr Duggan's girlfriend, Simone Wilson, 29, as saying she was "shocked" to learn that her boyfriend of 13 years was carrying a gun. She said Mr Duggan, also known as Starrish Mark, had become increasingly paranoid after a cousin was stabbed to death in a nightclub in March.
David Lammy, Labour MP for Tottenham, said: "I am shocked and deeply worried by this news. There is now a mood of anxiety in the local community but everyone must remain calm. It is encouraging that the Independent Police Complaints Commission has immediately taken over the investigation. There is a need to clarify the facts and to move quickly to allay fears."
According to police, officers from Trident accompanied by officers from the Specialist Firearms Command (CO19) stopped a minicab to carry out an arrest at around 6.15pm yesterday. "Shots were fired and a 29-year-old man, who was a passenger in the cab, died at the scene," the IPCC spokesman said.
The exact sequence of events is subject to the IPCC investigation. A firearms officer was taken to hospital as a precautionary measure but has since been discharged.
The spokesman said photographic and forensic examination was continuing, and a search for CCTV footage was ongoing. A post-mortem examination was due to be carried out as soon as possible.
Two shots were believed to have been fired by an officer with a Heckler & Koch MP5 carbine.
Jay Crowned, 39, who lives locally, said the man killed in the operation was "loved by the community." She said the man had three girls and one boy and described him as "a good daddy". "The whole family is devastated," she said. "He's not a troublemaker but he's been down since his friend was stabbed in Mile End in around April this year. His friend was like a brother and he lost him brutally. Since then he's been really down." She added: "He's never had trouble with the police before."
Rachel Cerfontyne, IPCC commissioner, said: "Fatal shootings by the police are extremely rare and understandably raise significant community concerns. The IPCC will always conduct the investigations into such shootings to ensure that the public can be confident they are fully independent. I will make certain that this investigation is thorough and answers the many questions that everyone has when such an incident occurs.
"I fully recognise how distressing and disturbing this must be for the family and the local community."