"According to information, three Jaish-e-Muhammad (JeM) militants are holed up in the village," Kuldeep Khoda, state director general of police, said.
One guerrilla jumped out of the house where he was holed up and started indiscriminate firing before taking shelter in another adjacent house.
"Security forces have now focused attention on two houses in the village where the JeM militants are holed up," said another senior police officer here.
An army helicopter also made sorties above the village to pinpoint the location of the guerrillas for the troops operating on the ground.
There is complete panic in the densely-populated village as security forces are trying to carry out the final phase of the operation.
Troops of the Rashtriya Rifles and Special Operations Group (SOG) of the state police surrounded a house in the village, 16 km from city centre Lal Chowk on Srinagar-Bandipora road, early on Thursday morning after specific information about the presence of a group of guerrillas in the house.