Security forces launched a cordon and search operation in the Hakripora area of Pulwama late last night following information that Dujana and his local associate, Arif Nabi Dar alias Rehan, were present, an Army official said.
An encounter broke out between the holed-up militants and the security forces early today.
During the firefight, both militants were killed, the official said. Their bodies were recovered and the operation called off, he added.
He was a category 'A' militant and carried a reward of Rs 10 lakh on his head, a police official said.
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According to a police spokesman, the slain militants were involved in grenade attacks on security forces at Kakapora.
They were also involved in the killing of sarpanch Fayaz Ahmad Bhat earlier this year, he said.
Dujana was a very close associate of Abdul Rehman alias Abu Qasim, the spokesman said adding that both were involved in an attack on a BSF convoy in Udhampur last year.
He was also involved in the killing of two CRPF personnel at Sangam in Anantnag district and in an attack on a police party at Gallander in Pampore area in which two constables were killed, the spokesman claimed.
The other slain militant, Dar, also known as Arif Lilhaari, was involved in robbing J&K bank branches at Arihal, Ratnipora, Nehama and the Ellaquai Dehati Bank's Wahibugh branch, the police said.
The security forces used tear smoke shells, pellets and fired a few rounds to disperse them, which resulted in the death of one civilian and injuries to a dozen others, he said.
"One person with fire-arm injuries was brought dead at the Pulwama district hospital," the police official said.
The deceased was identified as Firdous Ahmad, a resident of Begumbagh in Kakapora area.
According to the police spokesman, he was hit during cross firing between the militants and the security forces.
The authorities shutdown schools, colleges and universities soon after the killing of two militants as a precautionary measure, officials said.
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