The security forces launched a cordon and search operation in Ajas area this morning after receiving inputs that some top Hizb militants were present there, the sources said.
They said Lali was active for the past at least 15 years and had risen through the ranks to be among the top hierarchy of Hizbul Mujahideen in the Valley.
Two of this associates -- Abdul Rashid Lali and Showkat Ahmad Mir -- were also taken into custody by the security forces after the shootout, the sources said.
Some arms and ammunition have been recovered from the scene of the shootout but no one was hurt in the exchange of fire, they said.
The trio has been whisked away to an undisclosed location for questioning, the sources said.