Pakistani paramilitary forces have seized illegal weapons and arrested wanted criminals during a dawn swoop on the Karachi headquarters of the country’s third-largest political party.

The raid on the office of the Muttahida Qaumi Movement (MQM) on Wednesday left one party activist dead and risked sparking turmoil in an already restive port city that is home to more than 20 million people.

Shopkeepers immediately shut their businesses on the news, while office workers headed home and schools announced they would be closed for the day.

As one of the country’s best organised parties, the MQM maintains a vice-like control over the politics of Pakistan’s economic hub, but it is also accused of dominating the city’s criminal underworld through an armed wing of thugs and enforcers who extort money and execute political opponents.

A spokesman for the Rangers, the paramilitary force that conducted the raid, said they had acted on an intelligence tipoff and recovered illegal assault rifles from the MQM’s famous “Nine-Zero” administrative centre in the north of the sprawling city.

He also said around six party activists who were “known criminals” were arrested.

One of the men detained had been sentenced to death for the murder of the television journalist Wali Khan Babar in 2011, according to a Rangers statement.

Party official Faisal Subzwari strongly denied the allegations, claiming the weapons were licensed and necessary for defending party workers.

“We have kept weapons at Nine-Zero due to the prevailing security situation, particularly the threats from [the] Taliban,” he said.

MQM officials were incensed at the death of party activist Waqas Ali Shah, who was shot dead during the raid, although the Rangers denied they were responsible for firing the bullet that killed him.

The raid was the latest blow to an organisation run from London by its eccentric, self-exiled leader, Altaf Hussain.

He is subject to a Metropolitan police investigation into the murder of an MQM activist in the British capital as well as suspicions of money laundering.

The party, which traditionally represents the interests of the Urdu-speaking descendants of Muslims who moved to the city from India after the partition of the subcontinent in 1947, saw its once firm hold over the city’s middle-class voters loosen in last year’s general election.

The overwhelming majority secured by the governing faction of the Pakistan Muslim League meant the MQM could no longer extract concessions and receive protection from Islamabad by playing the role of troublesome coalition partner.

The government launched a major military and police operation last year to impose some order on Karachi, with scores of suspected militants killed in so-called encounters with police.

Last year, a senior policeman told the Guardian that the MQM were being treated with kid gloves given the unwillingness of the authorities to take on a party with a large block of seats in the national parliament and the provincial assembly of Sindh.

Soon after Wednesday’s raid, Hussain addressed thousands of his supporters, who assembled at Nine-Zero, via telephone from London.

He condemned the Rangers for what he called their brutality and for entering Nine-Zero without a search warrant.

“The Rangers have something against our party for no reason,” Hussain said. “We don’t have the strength to fight them.”

Muhammad Ziauddin, a senior journalist and veteran MQM watcher, said the Rangers had taken “a great risk” but were determined to decommission the party’s armed wing.

“Relations between the two sides have never been good but now it appears the Rangers have got enough evidence to move against them,” he said.