The encounter in Pampore town of Indian Kashmir entered the second day on Tuesday (October 11) as security forces continued to fight militants holed up in a government building.
An unspecified number of militants stormed the Jammu and Kashmir Entrepreneurship Development Institute (JKEDI) on the outskirts of Pampore town early on Monday (October 10) morning.
Intermittent firing and explosions were heard from inside the building, which was partially damaged by fire. The security forces have cordoned off the area.
An Indian soldier was injured in the gunfight on Monday.
A 48-hour long gun battle took place in the same complex in February this year. Seven people, including a civilian, three paramilitary commandos of the army and three militants were killed in the encounter.
The attack comes amid heightened tension between nuclear-armed India and Pakistan even as repeated ceasefire violations along the border are keeping the province on the edge.
Soldiers last week shot dead three suspected militants who tried to raid an army base in Kupwara district.
There has been a spate in militant attacks since India on September 29 announced surgical strikes against suspected militants attempting to infiltrate from Pakistan-occupied Kashmir.