Acting on a specific information about presence of militants, a joint search party of police and army raided Yackhote village near here, sources said.
They said that the militants, hiding in a house in the area, opened fire at the security forces, triggering a brief exchange of fire between the two sides.
Reinforcements have been rushed to the area, the sources said, adding there was no immediate report of any causality.
Security forces have launched a massive hunt for militants in Budgam district following an attack which left a police officer and a civilian dead earlier this month.