A group of two to three militants of a fidayeen squad stormed Rajbagh Police Station in the wee hours and opened indiscriminate firing, police officers said.
In the firing, a sentry died and another person was injured, who later succumbed to his injuries, they said, adding that a fierce encounter was going on.
Three persons, including two civilians, have been injured, they said.
Additional troops have been rushed to the spot and the Jammu-Pathankote Highway has been closed as a precautionary measure.
Home Minister Rajnath Singh spoke to the DGP of Jammu and Kashmir and took stock of the situation.
Singh has directed the Home Secretary to closely monitor the situation.