The operation began at 2 AM after intelligence that 28-year-old Qasim, a resident of Bhawalpur in Pakistan, was holed up in a house at Khandipura village in Kulgam, along with an accomplice, official sources said.
The village is located 80 kilometres from here.
A joint team of Army, police and para-military forces was rushed in and the village was cordoned off. Qasim was killed when he and his accomplices tried to break cordon laid by security forces.
Giving details of the encounter, he said, "One militant (Qasim) was killed while others managed to get back inside".
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The operation was still in progress.
Qasim was one of the top most wanted militants in the state for whom the state police had announced a reward of Rs 10 lakh. The NIA, which is investigating the Udhampur case, had also announced a similar reward for information leading to his arrest or killing.
Qasim was also involved in the killing of Sub Inspector Mohammad Altaf Dar at Bandipora on October 7, 2015.
The IGP said Qasim's killing will dent the operational capabilities of Lashkar in Kashmir and also the coordination between various militant outfits in the valley.
Gillani said Qasim was also involved in the attack on army convoy at Hyderpora in the city in 2013 that left eight soldiers dead. The militant commander was also involved in killing of noted cardiologist Sheikh Jalal in 2013 at Pampore in Pulwama district.