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

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

Police killed a suspect – who fled the scene on foot – after finding him nearby, still armed, near the scene.

Hollywood director Paul Feig described Ms Carleton as a “wonderful friend.”

Before shooting the victim, the suspect made “disparaging remarks” about the rainbow flag. At the scene, she was pronounced dead.

A handgun was found on the suspect, according to the San Bernardino County Sheriff-Coroner Department.

A lethal force encounter ensued, and the suspect was pronounced dead.

After confronting the suspect for ripping down the flag, Feig said his friend was shot.

He wrote on Instagram that he was “devastated” for Ms Carleton’s family and the LGBTQ+ community, “for whom Lauri was such a true ally”.

“This intolerance must end,” he wrote. “Anyone who uses hateful language against the LGBTQ+ community needs to realize that their words can inspire violence against innocent people.”

According to Lake Arrowhead LGBT, the incident marked a “very sad day” for the area, and Ms Carleton, a “friend and supporter”, would be greatly missed.

‘She was murdered defending her LGBTQ+ Pride flags in front of her store,’ the group wrote on Instagram.

“Lauri did not identify as LGBTQ+, but helped & advocated for everyone in the community.”