The suspects were killed in Hotan Prefecture, state-run Xinhua new agency reported.
The details of the incident is awaited, it said.
Xinjiang, home to Uygur Muslims, has witnessed a spate of terror attacks in recent times. The province is in turmoil over the increasing settlements of Han Chinese from other parts of the country.
Uygurs are a Turkic-speaking Muslims with ethnic fraternity in Turkey, bordering Syria.
On July 29, at least 32 people were killed in a major terror attack by knife-wielding extremists in the restive province on the eve of Eid.
A day later, the imam of China's largest mosque in Xinjiang was killed. Jume Tahir, considered pro-Beijing, was stabbed after he led early morning prayers at the Eidgah mosque in the county-level city of Kashgar.
Police have shot dead two suspects and captured a third for assassinating Tahir.