Gunfight broke out between the militants and the government forces in Noorbagh area of Srinagar district on Thursday.
Reports said a joint team of Special Operations Group (SOG) and paramilitary CRPF personnel laid a seige to Noorbagh area of Srinagar early morning.
A senior police officer said the operation was launched following inputs about the presence of militants in the area.
A police official said the militants opened fire as the forces approached the suspected house, leading to a gunfight.
When reports last came in, the intermittent exchange of fire was on.
Meanwhile, authorities have snapped Internet service in Srinagar district in the wake of the gunfight.