Two terrorists were killed in Bandipora district's Gurez Sector on 18 July.
Two to three terrorists were believed to be trapped in the area.
The operation was conducted by the 36 Rashtriya Rifles (RR).
The encounter is still underway.
Meanwhile, the authorities have closed all schools and colleges in south Kashmir's Anantnag district following the killings of three terrorists in a shootout with police and army late last night in Anantnag district.
Mobile Internet services were also suspended to prevent the spreading of rumours in the valley.
The three slain terrorists killed yesterday, all belonging to terrorist group Lashkar-e-taiba ( LeT) were identified as Shaukat Louhar, Mudassir and Zibran.
The Pakistan Army today violated ceasefire along the Line of Control (LoC) in Bhimber Gali and Poonch Sector of Jammu and Kashmir.
The violation took place at around 6:45 am, to which the Indian Army is retaliating strongly and effectively.
Earlier on Monday, a jawan was injured in the ceasefire violation carried out by Pakistan in the Uri Sector.
The Indian Army had also confirmed the death of a soldier during ceasefire violation by Pakistani troops in Jammu's Bhimber Gali Sector. The deceased soldier was identified as Naik Muddasar Ahmed.
In the fire exchange, Ahmed was grievously injured when mortar shells landed on his bunker. He was evacuated to the MI room where he succumbed to his injuries.