An encounter started in Charar-e-Shareef area of central Kashmir's Budgam district between militants and security forces on Monday morning.
An official said a joint team of police, the Army and the CRPF came under fire from hiding militants when they sealed off Hapatnar area.
Two to three militants are believed to be hiding in the area.
"The operation is on. It is a mountain side and we are slowly zeroing in on them," said the police.
Further details are awaited.