The incident occurred in Yar Hussain area of Swabi district bordering Punjab Province.
Police also claimed to have recovered weapons and explosives after the encounter.
District Police Officer Sajjad Khan said that the police received information about the presence of terrorists in Yar Hussain area.
Acting on tip-off, the police launched search operation in the area, he said.
"During search operation, the terrorists opened firing on police. However, the police in its retaliation fire shot dead all the four terrorists," he said.
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