Police have raided a house on Indonesia's Sulawesi Island where several alleged Islamic militants were staying, sparking a fierce gun and bomb battle that left one suspected terrorist dead, a top police chief said.

Four other alleged militants were arrested in Thursday's raid in Poso town in central Sulawesi, the scene of bloody violence between Muslim and Christian gangs six years ago and sporadic bombings and shootings ever since, said Brig Gen Badrodin Haiti.

The alleged militants hurled at least eight bombs and opened fire with automatic weapons at officers who moved in after receiving information the men were sheltering there, Haiti told The Associated Press.

"We killed one of the terrorists and arrested four others," Haiti said. Police seized three bombs and five automatic weapons from the house, he said.

He said the five men were wanted by police in connection with the fighting in central Sulawesi between 2000 and 2001, which killed some 1,000 people and attracted Muslim militants from all over Indonesia.