On specific information about the presence of three militants in Gunabadar village of Handwara, a joint team of police and Army launched a search operation during the night, an Army spokesman said.
He said the contact with the militants was established at 0645 hours when the militants fired upon the search party.
The security forces retaliated triggering an encounter.
Firing was going on when last reports came in, the spokesman said, adding there were no reports of any causalities so far.