Srinagar police have reportedly killed the two militants who were holed up inside a residential house in the outskirts of the city.
Earlier on Monday, the Police have asked the militants to surrender but the ultras have refused the offer so far.
The militants allowed the wife of the house owner, Abdul Majid Rangrez, to leave the building but have detained him inside, police said.
A senior police officer said the security forces have evacuated the civilians from nearby houses to avoid any collateral damage in case the militants do not surrender.
Police launched the operation yesterday following information about presence of militants in Ahmadnagar area.
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A brief exchange of firing took place between police and militants last evening, resulting in injuries to one cop.