Witnesses reported seeing a massive firefight at around 7.45pm, with at least ten shots fired.
One of the burglars, a 47-year-old Austrian man, was critically injured after being hit twice in the upper body and once in the leg.
It has since emerged that he is a convicted double murderer who was sentenced to life in prison for killing a policeman and a drug dealer in 1989.
He was released in 2009 after a psychologist classified him as harmless.
Police spokesman Paul Eidenberger said that he fired two shots at the police, who then pursued him through a housing estate.
After shooting and injuring him police approached him as he lay on the ground and he threatened to detonate a hand grenade.
However, the officers overpowered him and seized a gun and the grenade. None of the officers involved were injured. The man's 63-year-old accomplice did not resist arrest.
The injured man was taken to Vienna General Hospital and is reported to be in a coma, but doctors said his life is no longer in danger.
Meanwhile, in a separate incident, a 31-year-old Serbian man is in a critical condition after being shot in front of a Billa supermarket in Liesing on Monday evening at about 6.30pm in Purkytgasse.
A police spokesman said that a fight broke out among two men over a USB stick. One man shot the other at close range with a handgun and then ran off, leaving the seriously injured man lying on the ground.
Police tracked the gunman with helicopters, using thermal imaging. They surrounded a house but the man was able to escape.