The Army has cordoned off the encounter site.
A Junior Commissioned Officer or JCO of the Indian Army was killed when four militants entered a reportedly abandoned Army bunker near the Pindi post, barely three kilometres from the International Border in Jammu and Kashmir's Arnia sector.
The militants, who are believed to have entered the bunker on Wednesday night, were challenged by Army personnel. The JCO sustained fatal bullet injuries in the ensuing exchange of fire.
Three civilians were also killed in the encounter; which is still reportedly going on. The Army has cordoned off the area.
Three militants have also been killed in the encounter, said Army sources.
The initial alarm about the militants was raised by villagers this morning, after which the Army rushed in its Quick Reaction Team.
Ceasefire violations have also been reported at the border outposts at Pindi and Nairianpur.
Jammu and Kashmir Chief Minister Omar Abdullah said it "cannot be a coincidence" that the Arnia militant attack came as Prime Minister Narendra Modi and his Pakistani counterpart Nawaz Sharif attended the SAARC summit in Nepal.
"The timing of the attack in Arnia can't be a coincidence. My condolences to the family of the army officer killed in Arnia," Mr Abdullah wrote on micro-blogging site Twitter.