A police official said the operation was carried out by the special operations group of state police and the army’s counter-insurgency force Rashtriya Rifles in the evening in Goshbug, Pattan, 32km from Srinagar.
"Holed up militants were challenged to surrender but they started firing at the security forces, triggering an encounter," the official said.
Meanwhile, curfew remained in force in Shopian town in south Kashmir for the sixth day on Tuesday.
It was imposed on September 8, a day after the CRPF shot dead four youths the local residents said were civilians -- police confirmed three were civilians with no record of militancy and the fourth a suspected militant -- while the CRPF maintains they were militants who attacked their camp.
One more person was killed by the CRPF during a protest demonstration a couple of days ago.