Villagers in Northiam, near Rye, East Sussex, said the man turned up at his ex-partner’s home before opening fire at about 4pm on Thursday.
Armed officers who went to the scene in Spring Hill, amid reports the gunman was at large, found a man’s body in a car parked outside.
Sussex Police said the girl was in a life-threatening condition yesterday with a gunshot wound in King’s College Hospital, London.
Yesterday she remained “gravely ill” in the hospital, according to a police spokesman who also confirmed she is seven years old.
Officers said they believed the shooting was a “tragic domestic incident” and they were not treating the man’s death as suspicious.
One villager, Anthony Burr, said he had heard a man had gone to his former partner’s home where the girl lived and then shot his daughter.
Mr Burr, 37, who works in public relations, said: “At round 4pm, I came back and heard what I thought was a firearm about 200 yards from our house.
“Then my neighbour, who my kids were playing with, said there were reports that a father had shot his daughter and was still at large. Then I started to get reports that he had shot himself.
“What appears to have transpired is that a father has gone to his ex’s house where his daughter lives and has shot her. This has all come from neighbours and eyewitnesses.”
Another neighbour, Susie Clements, said that her son Ricky heard a woman screaming “He’s got a gun, he’s got a gun” before two shots rang out.
A heavy police presence remained in the village as the scene of the shooting was sealed off for detailed investigation.