Initial probe showed the accused Vijay Singh was a state electricity board employee, a police official told PTI adding the guest house in Kasauli area that he may have been running was registered in the name of one of his family members.
The police released Vijay Singh's photograph and announced a Rs 1 lakh reward for clues on his whereabouts, officials said. Intensive combing operations were on in the forest area where he is learnt to have fled, they added.
A hotel owner who spoke to the accused few minutes before the shooting incident had been detained, a source said.
Vijay Singh's mother Narayani said her son had looked disturbed.
"His mind was disturbed for the past many days but I neither saw him opening fire nor do I know who killed her (the officer). We did everything the authorities asked us to do," said Ms Narayani, after whom the guest house was named.
The body of Assistant Town and Country Planning Officer Shail Bala was handed over to family members after post-mortem and forensic examination. She was cremated at her native village in Ghumarwin in Bilaspur district, officials said.
The state government announced an ex-gratia of Rs 5 lakh to the next of kin of the deceased.
Demolition operations, suspended after the shooting on Tuesday, resumed under heavy police protection with senior officers camping in Kasauli. Prohibitory orders under section 144 of CrPC were in place near Narayani Guest House where the incident took place.
Additional forces were rushed to all demolition sites to ensure there was no violence.
Chief Minister Jai Ram Thakur expressed shock and grief over the killing of Shail Bala and warned that such incidents would not be tolerated and the culprit would be nabbed soon.
He said law and order would be maintained in the state at all cost and the orders of the Supreme Court would be followed in the letter and spirit. The government would submit a report in the Supreme Court on Thursday, he added.
On Tuesday, Assistant Town and Country Planner Shail Bala was killed on the spot while a PWD employee Gulab Singh was injured when Vijay Singh allegedly opened fire on the demolition team, police said.
The Supreme Court had on April 17 directed the state government to demolish unauthorised structures in 13 hotels in Kasauli and Dharampur areas of Solan district, and four teams were constituted for this purpose.
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