"Exchange of firing between militants and security forces has started after the militants turned down the offer to surrender," a senior police officer said.
Security forces had asked the militants, who took refuge in a residential house belonging to Abdul Majid Ranrez last evening, to surrender but they refused the offer, the officer said.
The security forces launched an operation in Ahmadnagar area of the city following information about presence of the militants.
In the initial exchange of firing, one cop was injured.
The security forces tightened the cordon around the house while evacuating the civilians from the adjacent houses.
Rangrez and his wife were also trapped inside the house, which prompted the security forces to move cautiously to avoid any collateral damage.
The militants this morning let go the couple first the wife and couple of hours later the house owners, following which the security forces launched the assault to neutalise the ultras.
Although identity of the holed-up militants could not be ascertained, police believe that the duo are affiliated to Lashkar-e-Toiba.