Army troops on Friday afternoon surrounded a local Shrine at Wallerhama village in south Kashmir's Anantnag district after two militants entered the premises.
The militants took refuge in the shrine following a cordon and search operation in the village.
Latest reports said the two were firing at the troops, who have laid a tight siege around the Shrine.
Earlier, security forces surrounded Wallerhama on specific information about the presence of two top Jaish-e-Mohammad militants in the village.
"As the security forces launched house to house searches, the two hiding militants sneaked inside the Shrine. The troops immediately surrounded the Shrine premises and holed up militants started firing at the soldiers," said a police officer.
Senior police and security force officers are supervising the operation.