Firing resumed early today morning in the Poonch district of India's northern Jammu and Kashmir state.
Defence ministry spokesperson confirmed the death of one more terrorist in the encounter.
his is the third encounter between Indian forces and militants after yesterday's twin encounters in which one police officer and seven militants were killed.
The firing began on Sunday around 7:30 am and continued throughout the day. The militants were holed up in a house and in another nearby building close to the government secretariat building.
A senior police officer told Reuters, "One policeman was killed, while another police officer and civilian were injured as militants tried to storm the building. The police repulsed the attack and the militants took refuge in nearby buildings."
The three militants were later killed, he said.
The Indian army also foiled an infiltration bid by militants on the Indian side of Line of Control.
In another incident, four terrorists were killed in the Nowgam sector of Jammu and Kashmir's Handwara district.