A US shop owner was shot dead after a dispute over a Pride flag displayed outside her business, police say.

Laura Ann Carleton, 66, was found with a bullet wound at her Mag Pi shop in Cedar Glen, California, on Friday.

A suspect - who fled the scene on foot - was killed by police when found nearby, allegedly still armed.

Ms Carleton was described as a "wonderful friend" by Hollywood director Paul Feig, who posted an image of them together.

The suspect made "disparaging remarks" about the rainbow flag before shooting the victim, police said. She was pronounced dead at the scene.

Officers then located the suspect, armed with a handgun, the San Bernardino County Sheriff-Coroner Department said.

At this point, "a lethal force encounter occurred and the suspect was pronounced deceased".

Feig - known for films such as Bridesmaids as well as the Freaks and Geeks TV series - said his friend had been shot after confronting the suspect for ripping down the flag.

In an Instagram post, he said he was "devastated" for Ms Carleton's family and the LGBTQ+ community, "for whom Lauri was such a true ally".

"This intolerance has to end," he wrote. "Anyone using hateful language against the LGBTQ+ community has to realise their words matter, that their words can inspire violence against innocent loving people."

Local group Lake Arrowhead LGBT said the incident marked a "very sad day" for the area and that Ms Carleton, a "friend and supporter", would be "truly missed".

She was "murdered defending her LGBTQ+ Pride flags in front of her store", the group wrote in its own Instagram post.

"Lauri did not identify as LGBTQ+, but spent her time helping & advocating for everyone in the community."