Four Saudi police officers and one suspected Islamic militant have died in a shoot-out in the Saudi capital Riyadh.
The Saudi capital has been tense since the May attacks
The gun battle, in the residential district of al-Suwaidi, lasted for five hours.
Eyewitnesses said at least five houses were targeted in the raid, which started late on Tuesday afternoon.
Seven people were arrested on suspicion of links to al-Qaeda, the interior ministry said.
Saudi Arabia has been tightening security since a series of suicide attacks on Western targets in Riyadh on 12 May killed 35 people, including nine attackers.
Saudi security sources said on Monday that police had arrested 10 militants following a shoot-out in Riyadh on Sunday.
However, the UK Foreign Office said on Tuesday told Reuters news agency it believed the suspects - who may have been planning an attack against a British target - may actually have escaped.
In Tuesday's raid, police cordoned off a large area and brought in helicopters for reinforcement. The district echoed with gunfire and grenade blasts.
The area is said by correspondents to be a stronghold of Islamic fundamentalists.
Witnesses said preparations for the police operation began on Monday night as officers evacuated local people and took up position on rooftops.
"The operation is very big," one eyewitness told Reuters earlier.
"The whole area is surrounded by security police. It is a big area."
An Arabic TV correspondent said there was a "huge" police presence including special forces.
According to a reporter on the Qatari satellite TV channel al-Jazeera, the Saudi police had not anticipated such fierce resistance.
Local residents said they saw police dragging out and arresting suspected
"I saw one man break free from police and run away after kicking off his shoes. Police were chasing him," one said.
Facing accusations from the US for not doing enough to combat terrorism, Saudi Arabia has cracked down harder on Islamic militants since the May bombings.
Since the attacks - which Washington and Riyadh blame on al-Qaeda, Saudi security forces have arrested about 200 suspected militants across the country and killed about 12.