Dasharath Madkami said he found the animal when a strange sound woke him up at around 03:00 local time (21:30 GMT).
He raised the alarm to alert other villagers, who overpowered the reptile and tied it to a tree.
The panicky villagers initially wanted to kill the crocodile, but were dissuaded by the headman.
Local wildlife authorities eventually came and rescued the animal.
There was some dispute over where it could be released.
Forest officials wanted to take it back to the nearby Satiguda dam, where it had come from, but villagers refused as they feared it would return to the village.
"There are some 30-40 crocodiles in the Satiguda dam. This one had perhaps slipped into the village, which is just a kilometre away from the dam, to lay eggs," local forest official Sushant Nayak told the BBC.
The crocodile was ultimately released into the Balimela reservoir, 60km (37 miles) away.