Two policemen were also injured in the shoot-out.
Afghani was killed when his vehicle was intercepted by police at Foreshore Road along the Dal Lake.
"Sajad Afghani had come to Srinagar to set up bases here which we expected could have created disturbances in the summer," said MS M Sahai, IGP Kashmir.
One of the longest surviving Pakistani militant commanders in Kashmir, Afghani was involved in many attacks on the security forces in the state over the last 8 years and was one of the most wanted militants in Kashmir.
Recently, he had masterminded attack on CRPF in Pattan, killing two Jawans & an attack on Sopore SP. Afghani also recruited local youth in Jaish ranks.