Bahraini authorities said they made several arrests but did not comment on the reported death in Diraz, where supporters of Ayatollah Isa Qassim from the island kingdom's minority Shi'ite community have set up a protest camp.
Pictures posted online showed the body of a man covered in blood. One activist said mosques were broadcasting messages calling people onto the streets to protect Sheikh Qassim.
Security forces entered the village early on Tuesday, days after Sheikh Qassim was sentenced to a year in jail, suspended for three years.
Bahrain in 2011 crushed an uprising by Shi'ites demanding reforms that would give them more representation in the country ruled by the Al Khalifa monarchy.
Activist Ebtasam Alsaegh, from the neighboring village of Bani Jamra, said that she could hear police firing birdshot.
"The situation is terrifying ... It's making people really angry and the young men are taking to the streets. The mosque speakers are calling out 'God is Great', urging people to come out and protect Sheikh Qassim," she said by phone.
Other pictures posted by activists showed at least 10 armored police cars lining up, officers shooting tear gas cannisters and masked protesters erecting road blocks with planks and cinder blocks.
Human Rights Watch condemned the Diraz operation as a crackdown on freedom of expression.
"Yet again the architects of bloody destabilizing violence in Bahrain appear to be the Al Khalifa government, and the timing of this operation - two days after King Hamad's convivial meeting with President Trump - can hardly be a coincidence," the group said in a statement.
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