Two suspected members of the Basque separatist guerrilla group ETA were killed and a Civil Guard soldier was wounded in a gun battle early yesterday, officials said.
Police said they had arrested four people in the surrounding area after the incident. But state radio reported that up to eight people linked to ETA had been taken into custody.
The shootings broke out outside an apartment building in the Basque port city of Bilbao when civil guards dressed in civilian clothes confronted two men they had been trailing, regional authorities said.
Finding themselves surrounded, the suspects drew guns and opened fire. Both men were killed in the exchange and one civil guard was slightly wounded in the hand.
The gun battle followed a Spanish government pledge to crack down on ETA (Basque Homeland and Freedom) after the rebels caused national outrage in July with the assassination of Mr Miguel Angel Blanco (29), a Basque town councillor.
Yesterday police cordoned off the neighbourhood where the shootings took place. Bloodstains covered the pavement where the gun battle had raged.
The two men were believed to be members of the Comando Vizcaya, one of ETA's most active units, Basque regional government officials said.
Police identified one of the dead as Salvador Gaztelumendi Gil (27), who had been implicated in the assassination of a national police officer in April.
The other man was believed to have false papers, and police who initially named him later withdrew the identification.
The suspects had been under surveillance for some time before the civil guards moved in and demanded to see their identification papers, officials said.
A man seen running from the scene was initially thought to be another ETA suspect, but police later said he was a passer-by caught in the crossfire.
State radio reported that police had also seized arms and explosives.