Moroccan national Younis Mohammad Ibrahim al-Hayyari, accused of involvement in a spate of attacks in the country, died after exchanging fire and hurling hand grenades at police.
The clash erupted after security forces came under fire when they raided a suspected militants’ hideout in the Rawda neighbourhood, officials said.
Interior Minister Prince Nayef said the operation was the result of extensive surveillance by Saudi security forces.
“What happened today was the result of the effort of the previous period and God willing, we will reach the rest using the same method,” he said.
Two other suspects were arrested in another raid.
Hayyari, 36, entered Saudi Arabia on a pilgrimage visa in February 2001 accompanied by his wife and daughter but stayed on in the kingdom illegally, according to the ministry.
Successive leaders of the Saudi wing of al-Qaeda have been killed since 2003.
Hayyari’s name was at the top of a list of 36 al-Qaeda suspects — mostly Saudis but also some from Chad, Yemen, Morocco and Mauritania — issued by the Saudi government last week.
Fifteen of the suspects are believed to be inside Saudi Arabia. One suspect, Fayez Ayoub, surrendered to authorities on Friday.
Newspapers have reported that at least two others on the list have been killed in neighbouring Iraq.
Saudi Arabia has been battling suspected militants since May 2003, when they launched a campaign of violence with triple suicide bombings at expatriate housing compounds in Riyadh.
The attacks have killed more than 90 foreign and Saudi civilians, at least 40 security personnel and 112 militants.
Authorities have offered a bounty of up to 7 million riyals ($A2.5 million) for information leading to the capture a militant on the list.
All but two on a 26-strong list of most-wanted militants published in December 2003 have been killed or arrested.
Meanwhile, one of Osama bin Laden’s half-brothers said he would pay for the terror mastermind’s defence should he ever be captured.
“Everyone has the right to defend himself, anyone who is accused of doing something,” Yeslam Binladen said in an Arab television interview, adding that he believed his half-brother, thought to be hiding in the mountainous Afghan-Pakistan border region, was still alive.