Armed to the teeth, the man took potshots at police from his hideout as residents were evacuated from nearby homes and the area cordoned off.
Even the mother of the gunman was evacuated after cops convinced him to let her go, though she could not convince him to surrender.
Footage from Russian TV station RT shows special forces then pounding the home with bullets, before blowing up the front with high-powered explosives.
A second explosion then followed as the battered front of the building caved in completely, before a clean-up crew got to work moving debris.
Law enforcement told Russian news agency TASS that one gunman died in the encounter and one in the wider operation in Nalchik.
He said: “Law enforcement agencies received information that an armed person suspected of involvement in terrorist activities might be in a private house.
“The counter-terrorist regime was imposed at 4.25pm Moscow time to prevent terrorist attacks and to ensure people’s security. People from neighbouring houses were evacuated.”
“The woman also tried to talk him into surrendering. Instead, he opened gunfire at the law enforcers.”
Russia has suffered terrorism on a number of occasions at the hands of Islamist militants in the Caucasus region.