Two soldiers, including an officer, were also wounded in the initial shooting of the militants, they said.
Security forces launched a cordon and search operation in the district's Drabgam area, after receiving information about the presence of two or three militants there, a police official said.
The official said that while the security forces approached his position, the militants resorted to indiscriminate dismissal.
Two soldiers were wounded in the initial shooting, an army official said, adding that the cordon has been strengthened.
The official said that two militants were killed by the forces and that the operation to expel any remaining militant was on when the latest reports arrived.
One of the injured is a senior officer, who was shot in the arm. Both wounded soldiers have been evacuated to the base hospital of Army 92 to receive treatment.
The police officer said that when security forces were involved in the armed battle with the militants, a group of civilians began throwing stones at them to disrupt the counter-insurgency operation.
Several protesters were injured in a retaliatory action by security forces, one of them was killed by a bullet wound in the chest, the official said.
He has been identified as Shahid Ahmad Dar, the official said, adding that the circumstances in which the 25-year-old boy died are being ascertained.
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