Two terrorists were killed in an encounter with security forces in Srinagar's Nowgam area on Wednesday, police said.
Security forces launched a cordon and search operation in the city on information that some terrorists had sneaked into the area.
The terrorists opened fire on security forces, triggering a gun-battle in which they were killed.
A police official said locals have been told not to go near the operation site till the area was sanitised.
Authorities have suspended mobile Internet services in the city and shut educational institutions as a precautionary measure.