DUBAI (Reuters) - A wanted man has been killed in Saudi Arabia's oil-producing Eastern province after an exchange of gunfire while police were searching his home, state news agency SPA reported on Thursday.

The search in the village of Awamiya came amid rising anger in neighboring Bahrain after authorities stripped the spiritual leader of the kingdom's majority Shi'ite Muslims of his citizenship over alleged links to Iran and accusations he was fomenting sectarian tensions.

Saudi state news agency SPA said security forces came under heavy fire when they raided the home of Abdul-Rahim al-Faraj and his brother, Majed, who was also wanted by security forces, in Awamiya on Wednesday evening.

"Security forces were later informed that a person who was fatally wounded by a gun shot had arrived at Mudar clinic and his identity check showed it was the wanted man Abdul-Rahim al-Faraj," SPA reported, quoting an interior ministry spokesman.

The agency said the two brothers had been wanted for firing on security forces in attacks that killed several, of being involved in armed robberies, and that weapons had been found in the house.

Awamiya is also the home town of prominent Shi'ite Muslim cleric, Sheikh Nimr al-Nimr, whose execution in January prompted angry protests in the area against the ruling Al Saud dynasty and led to Saudi Arabia cutting off relations with Iran.

Bahrain's decision to revoke the citizenship of Ayatollah Isa Qassim followed a decision to shut down the main Shi'ite opposition group in Bahrain, measures that have fueled discontent in the island kingdom, near the Eastern province where most of Saudi Arabia's minority Shi'ites live.

In February, Saudi security forces killed Ali Mahmoud Ali Abdullah, a Bahraini national, who was wanted for taking part in "terrorist crimes", according to the ministry.

Qatif in Eastern province has been the focal point of unrest among Saudi Arabia's Shi'ites since protests in early 2011 calling for an end to discrimination against the minority sect and for democratic reforms in the Sunni Muslim monarchy.

(Reporting by Mostafa Hashem; Writing by Sami Aboudi; Editing by Paul Tait)