Four security personnel, including a colonel and a major, have been killed in the operation to flush out militants holed up in the BSNL building in the high-security Badamibagh Cantonment area in Srinagar.
After an overnight lull, the militants on Thursday morning hurled grenades at security forces that retaliated with rockets and mortars, a defence spokesman said.
In the exchange of fire that followed, the major and one of the militants were killed. Firing from the building had stopped.
Security forces had sealed off an area measuring about one square kilometre around the scene of the encounter. Eight security personnel, including three officers, have been wounded in the 40-hour-long standoff. Of these, Colonel P C Roy and a CRPF jawan succumbed in an army hospital on Thursday.
The BSNL exchange was gutted in the exchange of fire on Wednesday evening.