The encounter started after the army and the police launched a cordon and search operation following a tip off about the presence of terrorists in the village this evening.
This is the first major anti-terrorism operation in the area after the killing of three soldiers in a terrorist attack last week. Five other soldiers including two officers were also injured in the attack.
Shopian is one of most militancy-infested areas of south Kashmir.
Earlier in the day, a civilian was killed and four other people were injured in a grenade attack in the busy market place of neighbouring Pulwama district.