Hundreds of people had gathered in the streets outside the Omari mosque to prevent troops from storming it.
The mosque has been the focus of anti-government demonstrations since Friday. At least 10 people have now been killed in clashes with police and soldiers.
Officials have blamed the violence on an "armed gang".
UN Human Rights Commissioner Navi Pillay earlier urged the Syrian government to end the use of "excessive force".
"People have the legitimate right to express their grievances and demands to their government," she said.
The EU has also strongly condemned the "unacceptable" crackdown.
After four days of clashes, Deraa had been relatively quiet on Tuesday.
Hundreds of people had gathered around the Omari mosque in the Old City, but were dispersed by the security forces.
By the afternoon, some protesters had erected tents outside the mosque - they said they were going to remain there until their demands for greater political freedom and an end to corruption were met.
But shortly after midnight, the power supply and telephone lines to the area were cut.
Witnesses said released tear gas and fired live ammunition at protesters around the mosque.
Ali Ghassab al-Mahamid, a doctor who had gone to help victims of the violence, was killed, Reuters news agency reported. One witness said he was shot dead by a sniper.
A political activist said the old quarter was in total darkness. "It is still difficult to know exactly what happened," he told Reuters.
One activist told BBC Arabic there was a "massacre" taking place in the country.
"The Syrian authorities are now committing a crime against humanity whose victims are innocent, defenceless and peaceful citizens, who are staging peaceful sit-ins, and who don't even have stones to defend themselves with," said the activist, who gave his name to the BBC.
"These people think that they can kill the democratic protesters without being held to account."
State media said four people had been killed. Officials blamed the violence on an "armed gang", which they said had attacked a medical team in an ambulance, killing a doctor, paramedic and driver. One member of the security forces had also been killed, said the report.
"The security forces who were near the area intervened, hitting some and arresting others," the AFP news agency quoted officials as telling state media.
The government has previously accused protesters of being Israeli agents and infiltrators.
Rights groups say arbitrary arrests of protesters and activists have been taking place across the country.
On Tuesday, the Syrian Observatory for Human Rights said Louai Hussein, a former political prisoner who supported the protesters, was taken from his home in the Damascus suburb of Sahnaya.
However, reports say the governor of the Deraa region, Faisal Kalthoum, has been sacked - one of the demands of the demonstrators.
The authorities have also released the 15 children whose detention for writing pro-democracy graffiti prompted people to march from the Omari mosque after Friday prayers.
The security forces later opened fire to disperse the demonstration, killing four people. The following day, they fired on mourners at two of the victims' funerals, killing another person. An 11-year-old boy died on Monday after suffering the effects of tear gas inhalation.
Although the demonstrators have not demanded the resignation of President Bashar Assad, the unrest is the most serious challenge to his rule since he succeeded his father 11 years ago.
The BBC's Lina Sinjab in Damascus says the recent events are unprecedented in recent Syrian history, and the unrest is certainly making the government very worried.
Syria has been ruled under emergency laws since 1963.