Sunil Mahato of the Jharkhand Mukti Morcha was killed while watching a football match in Jharkhand, which has been the scene of a Maoist insurgency.
Two security guards and a party leader were also killed in the shoot out.
More than 6,000 people have died during the rebels' 20-year fight for a communist state in parts of India.
The ruling Jharkhand Mukti Morcha-led government in the state has called for India's top federal detective agency, the Central Bureau of Investigation (CBI), to lead an investigation into Sunday's murder.
The incident happened when Mr Mahato turned up in Kishanpur village to watch a local football match.
Ghatshila senior official Ramesh Dubey told the Press Trust of India news agency that about 15 Maoists came to the match and moved close to where Mr Mahato was sitting on the pretext of giving him a garland.
'Revenge'
He said Mr Mahato and his security guards died instantly after the men opened fire, while a local party leader died on his way to hospital.
Jharkhand chief minister Madhu Koda said he did not rule out the Maoists killing Mr Mahato in "revenge" for the government's drive against the Maoists in the region.
A spokesman for Jharkhand Mukti Morcha said a general strike has been called in the state on Monday in protest against the murder.
The Jharkhand Mukti Morcha party is an ally of the governing Congress party.
The Maoist movement which began more than three decades ago has spread to a number of Indian states.
The rebels say they are fighting for the rights of poor peasants and landless workers.
