Police and security forces are actively engaged on the scene, said officials.
Local media reports said the encounter happened after a day-long search operation. Two militants are believed to be trapped in the area, said reports.
There has been an uptick in terror-related incidents in J&K recently.
Last week saw four terrorist attacks in which 10 people including a CRPF and two terrorists were killed and 50 others suffered injuries in Reasi, Kathua and Doda districts.
There have been sporadic encounters as security forces have widened their search operations to nab the terrorists.
(This is a developing story)