Sources told ABC News and the Los Angeles Times police had recovered Dorner's body from the cabin -- which authorities pulled apart wall by wall -- but an LAPD public information officer said those reports are false, as the cabin was still too hot to enter.
A law enforcement source told the Times officers broke windows, fired tear gas and called to Dorner, the ex-Los Angeles police officer wanted for a total of four slayings and the wounding of three law enforcement officers, to surrender. The source said police used equipment to pull down the cabin walls "one by one, like peeling an onion" when Dorner failed to answer, and heard a single gunshot as they got to the last wall.
The fire that started during the operation burned out of control and was likely to blame for setting off other gunshots, the Times said.
CNN reported a source familiar with the operation said the fire was started when a SWAT team stormed the cabin and detonated smoke devices inside.
Heavy smoke and flames were seen pouring from the cabin for an hour. CNN said authorities made no move to put out the flames.
The Times said its law enforcement sources said one of two deputies wounded in the shootout with Dorner Tuesday was pronounced dead after being airlifted to Loma Linda University Medical Center. San Bernardino County Sheriff John McMahon told reporters a second deputy who was wounded was in surgery "but he should be fine," CNN said.
A Times source said Dorner, also wanted in the killing of three other people -- one officer, the daughter of another and her fiance -- and wounding of two other police officers, had broken into another cabin in the Big Bear area and allegedly tied up a couple he held hostage until Tuesday morning when he left. Fish and Wildlife officers, on the alert for a white pickup truck, spotted Dorner driving one and gave chase, the newspaper's source said.
Dorner crashed the truck and allegedly exchanged shots with the officers before entering another cabin, which U.S. marshals said was near Mentone, where dozens of officers converged.
The Times source said one county deputy was hit as Dorner shot from the cabin and a second was injured when Dorner went out the back, set off a smoke bomb and shot again in an apparent attempt to escape. Dorner was driven back inside, the source said.
Hundreds of rounds were fired during the exchange with Dorner, the Times said.
"There are deputies everywhere on the ground and on foot," Cindy Bachman, a sheriff's spokeswoman, told the Times.
Big Bear Lake Mayor Jay Obernolte told CNN it would be "only a matter of time" before situation was resolved.
"We're certainly hoping he can be captured and subdued without any more loss of life," Obernolte said. "He's certainly not the kind of tourist we want up here."
The incident occurred in an area that had been the focus of a massive search for Dorner, 33, who also is a former Navy marksman.
Dorner was dismissed from the LAPD after he filed a complaint in 2007 that another rookie had assaulted a homeless man, a report that was deemed to be unfounded. On Facebook, he threatened "unconventional and asymmetrical warfare" against police.
One of his suspected victims was a police officer, and the others were the daughter of his attorney, also a former police officer, and her fiance. Two other police officers were wounded.