The gunfight started on Thursday after a joint team of the police and the Army cordoned off the area and launched a search operation on the basis of a specific information about the presence of terrorists.
As the security forces zeroed in on the spot where the terrorists were hiding they came under a heavy volume of fire that triggered the encounter.
Three terrorists were killed on Thursday evening.
After a lull in the night, the gunfight resumed on Friday morning in which two more terrorists were gunned down. A search operation by the security forces is underway in the area.