A group of two to three militants were trapped in a building of the Jammu and Kashmir Entrepreneurship Development Institute (JKEDI) complex near Pampore town of Pulwama district, police said on Monday.
"Security forces surrounded the building and all escape routes were sealed off," said a senior police official.
The officer said that intermittent gunshots were heard inside the complex as the security forces were moving in cautiously to flush out the militants.
A 48-hour long fierce gunfight took place in the same complex in February in which seven people including a civilian, three paramilitary commandos of the army and three militants were killed.
The JKEDI complex is situated on the Srinagar-Jammu national highway, about 10 kilometres from Srinagar.
Traffic on the strategic highway was also suspended.