The hours-long gun battle happened in Peshawar district.
The terrorists were holed up in an abandoned building previously used as a floor mill.
The police surrounded the building and asked the terrorists to surrender, but they started firing instead.
The police retaliated and killed three terrorists while another terrorist was arrested.
Three policemen, which included two station house officers, and one soldier received injuries during the raid.
Huge quantity of arms and ammunition were seized from their possession.
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