Nepali border guards opened fire Friday after a group of Indians crossed the frontier, killing one man and wounding two, police said.
It was the latest in a series of incidents along the border which Nepal has tightened since imposing a nationwide pandemic lockdown in March.
About 30 Indians crossed about 100 metres (yards) into Nepal's territory in the southern district of Sarlahi and clashed with police when stopped, district police chief Ganga Ram Shrestha told AFP.
Shrestha said the guards at first fired into the air when scores of people gathered and hurdled stones and bricks at police and also snatched a gun.
"The police were forced to fire five rounds to recover the gun, injuring three people. We learnt that one of them died during treatment in India," Shrestha said.
Three Nepali border police were also injured, he added. Indian media said one man was also detained and that officials from the two sides had held talks.
Nepali authorities have stepped up border security because of increased incidents during the lockdown along the 1,750 kilometre (1,100 mile) frontier which is traditionally open.
Last month police in the western district of Jhapa fired blank rounds to disperse dozens of Indian farmers trying to cross the border.
There are also increased territorial tensions between the neighbours after India opened a new road into a disputed zone.