General Abdelaziz al-Fagham, who was frequently seen by the king's side, died Saturday evening in the western city of Jeddah, police said in a statement carried by the official Saudi Press Agency (SPA).
"Fagham was visiting his friend at his home in Jeddah when (an) acquaintance, Mamdouh al-Ali, entered the residence," it said.
"The conversation between Fagham and Ali escalated... Ali left the home, came back carrying a gun and fired at Fagham, injuring two others in the household, a Filipino worker and brother of the house's owner."
Al-Ekhbariya state television reported that the incident was triggered by a "personal dispute", without giving further details.
Ali himself was later killed and five security personnel wounded in a shootout when the suspect "refused to surrender", SPA said.
It added that Fagham died in hospital from his injuries and that an investigation had been launched.
The general, close to the king, was well known among Saudis.
His death sparked sharp reactions on Twitter, with some condemning the killing of the Saudi ruler's "guardian angel".
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