A Rohingya man was shot dead Thursday as local gangs fired at each other in a crowded refugee camp in southern Bangladesh, police said.

Police said 32-year-old Hossain Ali was killed as he took part in a suspected turf war over drugs at Nayapara camp near Teknaf, an enormous settlement that is home to thousands of displaced Muslims from the persecuted minority.

Bangladesh says more than one million Rohingya refugees live in squalid camps in the region, having fled successive waves of violence in Myanmar's Rakhine district.

Another man, wanted by police since being released from prison last year, was also shot but managed to escape, officials said.

Refugees at the camp told AFP at least 10 gunshots were heard in the early morning.

Local police did not recover any weapons but Teknaf police chief Ranjit Kumar Barua confirmed Ali was "struck in the gun battle and died".

A Rohingya community leader, Mirza Ghalib, said it was believed the skirmish was over "yaba", the local name for the methamphetamine pills popular in Bangladesh.

Police say most of the drugs enter Bangladesh from Myanmar via Rohingya traffickers, sometimes hidden in false bottoms on fishing boats.

In recent weeks, police have arrested half a dozen Rohingya in possession of large quantities of the addictive stimulant.

Nurul Alam, a known criminal with alleged ties to Rohingya terrorists, was also shot "but fled after being struck by bullets", Barua said.

Myanmar blames Rohingya terrorists for an August 25 strike on security posts in Rakhine state that triggered a fierce army crackdown.

Police allege Alam organised a raid on a Bangladeshi security post near Nayapara in 2016, in which a commander was killed and 11 guns stolen. He was arrested and later released on bail in December pending a trial but quickly returned to crime, police said.

Local community leaders believe Alam has ties to Rohingya terrorists but Ruhul Amin, local commander of the elite Rapid Action Battalion police unit, told AFP it was not clear if this was the case.

Alam allegedly appeared in a video holding assault rifles that was distributed by the Arakan Rohingya Salvation Army.

Myanmar last week bolstered security and artillery installations near along its border, saying it believed Rohingya terrorists were hiding in nearby camps.

© AFP