"A joint operation of the army and the police was launched after specific intelligence," said Srinagar-based defence spokesman.
At least four casualty are reported so far. "The operation has so far resulted into killing of two terrorists," said the spokesman.
He said one junior commissioned officer (JCO) and a police personnel were also killed in the volley of bullets fired by the militants. The JCO was from army's 9 PARA regiment. "The operation is in progress," said the spokesman.
An assistant sub-inspector and a constable were also injured in the encounter. There were unconfirmed reported of one civilian and two more army personnel receiving bullet injuries.
The security forces refused to divulge details on how many militants are hiding in the area.
Kupwara district is very close to the Pakistan-occupied Kashmir. It is a major route for infiltrating militants to fan out in the valley. According to the police, there are 130 active militants in the state. There are fears that the militants may up their activities in the run up to the parliamentary polls.
Meanwhile in south Kashmir, a police man was critically injured when suspected militants shot at him in Anantnag district, scheduled for polling on April 24. The injured cop police was shifted to hospital. The incident took place the town's busy market area of Lal chowk area.