The attack by the LeT to free "hardcore" Lashkar-e-Taiba terrorist Mohammed Naveed Jhatt took place around 11.35 am inside the busy SMHS hospital complex in a high security area of Jammu and Kashmir's summer capital.
It ended with Head Constable Mushtaq Ahmad and Constable Babar Ahmad Khan being killed and the terrorists escaping into the narrow lanes of downtown Srinagar, a police official said.
"It's a very unfortunate incident and the terrorists managed to free one of their hardcore accomplices. We have sounded a red alert to nab all those involved in this crime," said Director General of Police S P Vaid.
Senior officials said Srinagar had not witnessed such a getaway since 2001 when "dreaded terrorist" General Abdullah managed to give a slip to his police guards and escaped by jumping from the first floor of SMHS hospital.
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Piecing together eyewitness accounts and CCTV footage to ascertain what had happened today, police said two militants were lying in wait in the parking lot of the Out Patient Department hospital for the prison vehicle, carrying Jhatt and five others for treatment.
Babar Ahmad, who was accompanying the team, attempted to retaliate and was also fired at by Jhatt and the terrorist who had handed over the pistol, a senior official said.
As the firing started, the five other jail inmates, who had been referred by the jail doctor to the hospital, were seen lying flat on the ground to escape the bullets, he said.
Mushtaq Ahmad died almost immediately after the attack that took place in the busy pre-lunch hour when the 70-year hospital, Srinagar's main health care facility, is crowded with patients.
Jammu and Kashmir Director General of Prisons S K Mishra said he had ordered an inquiry into the escape.
The hospital, named after Shri Maharaja Hari Singh, the last ruler of the princely state of Jammu and Kashmir, is strategically located on the banks of a tributary of the Jhelum, with uptown Karan Nagar on one side and Nawab Bazaar in downtown Srinagar on the other.
Jhatt, a school dropout from Borevella district of Multan in the Pakistan Punjab, is believed to be involved in multiple attacks. These include an attack on the Army in Hyderpora in the city, an attack on the Silver Star hotel along the national highway outside Srinagar and three attacks on police and CRPF camps in south Kashmir.
The militant had undergone intensive training and was good in handling equipment like compasses, GPS, wireless sets and mobile phones installed with Skype software, an official said.
Jammu and Kashmir police wanted to shift him along with five other prisoners from Srinagar jail to other high security jails outside the Valley but was disallowed from doing so by the sessions court on December 26, 2017.
Jammu and Kashmir Chief Minister Mehbooba Mufti condemned the killing of the two policemen and expressed her grief.
"Pained to hear that two more brave policemen lost their lives in an attack in Srinagar today. My heart goes out to their families and loved ones," Mehbooba said on Twitter.
The opposition Congress demanded a probe while the National Conference termed the attack the "biggest security lapse" as it had happened in a heavily guarded complex.
Condemning the incident, NC president Farooq Abdullah and working president Omar Abdullah expressed their profound grief and sorrow over the killing of two policemen.
A wreath laying ceremony for the two policemen was held at Police Lines.
Mushtaq Ahmad, a resident of Karnah in north Kashmir, is is survived by wife and a daughter about 10 years old.
Babar Ahmad, from Shangus in south Kashmir, is survived by his wife, two daughters (aged three and two), his father, four brothers and an unmarried sister.