Senior Superintendent of Police Handwara, Gulam Jeelani Wani said militants attacked a naka party of forces at Zachaldara, Handwara in the evening.
The identity and group affiliation of the slain militants is being ascertained, the official said.
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"Two militants were reportedly killed in the encounter", they said, adding that the operation was still going on.
Meanwhile, Internet services were suspended in Kupwara and Baramulla districts following the killing of two militants. A search was launched in the area after the encounter, the spokesman said.
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Sources said that almost 70 security personnel have lost their lives in the line of duty this year, while an equal number of ultras have infiltrated into Kashmir in the past 10 months.
"Many cordon and search operations have been conducted in Hajin area to trap him but he has managed to give slip to security forces so far", they said.
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No one was injured in the attack. In a separate case in south Kashmir's Shopian district, militants assaulted a Congress worker.