Milwaukee police said a uniformed officer had opened fire while chasing the man after an afternoon traffic stop.
Neither the race of the suspect nor the officer were disclosed by authorities, though the dead man's age was given as 23 years.
The incident occurred in one of the city's most impoverished, and predominantly African-American, neighborhoods.
The suspect, who the department said had a lengthy arrest record, was armed with a stolen handgun.
It did not say whether the man fired any shots during the incident. Mayor Tom Barrett said the gun was loaded with 23 rounds.
A crowd later broke the windows of an unoccupied squad car and set another one on fire before setting a gas station ablaze.
"Our city is in turmoil tonight," said Alderman Ashanti Hamilton, president of the Milwaukee Common Council.
Authorities believe fires were set at a total of three locations, the mayor said, and firefighters were initially unable to combat the blazes because of shots being fired.
The disturbances were the latest in a series of protests that have gripped U.S. cities - including Baton Rouge, Dallas, Ferguson, Missouri, New York and Oakland - over the past two years in the wake of killings by law enforcement officers.
All of the previous incidents involved young African-American males, giving rise to the Black Lives Matter movement.
"This is a warning cry," said Alderman Khalif Rainey. "Black people of Milwaukee are tired. They are tired of living under this oppression."
Firefighters were battling a second large blaze at an auto parts store near the scene. A local NBC affiliate also aired video of firefighters at bank where smoke was rising out of its front window.
One officer was hit in the head by a brick thrown through a squad car window. Protesters fired shots and hurled rocks as police attempted to disperse the crowd, which local media reported numbered more than 100.
Three arrests were made in the city in connection with the unrest, said Assistant Police Chief James Harpole, adding that multiple gunshots were fired from various locations during the disturbances.
The officer involved in the shooting of the suspect was on administrative duty during the investigation and subsequent review by the Milwaukee County District Attorney's Office.
Milwaukee Police Assistant Chief Bill Jessup told the Milwaukee Journal Sentinel that it was not clear if the suspect pointed the gun or fired at the officers.
"Those additional facts will come out in the coming days," Jessup was quoted as saying.