The area has been cordoned off for security purposes. Arms and ammunition were also recovered.
The encounter has stopped, however, the search operation is still on.
Indian Army's 3 Rashtriya Rifles (RR) and police are jointly conducting the ongoing operation.
Further details of the incident are awaited.
The Valley has been witnessing a spurt in terror activities for the past few months.
Earlier this week one soldier and four terrorists were killed in Shopian district after an encounter broke out in a village.
Two terrorists associated with terror outfit Al-Badr were also killed last week in an encounter in Rebben area of the Shopian district. On the same day, a Central Reserve Police Force jawan lost his life after terrorists opened fire on a CRPF camp at Railway Colony in Pulwama's Kakapora area.
The area has been cordoned off for security purposes.