A policeman was also critically injured in the attack, which ended with the terrorists escaping into the narrow lanes and bylanes of downtown Srinagar, a police official said.
Mohammed Naveed Jhutt, the 22-year-old LeT militant from Pakistan who was caught in Kulgam in south Kashmir in 2014, managed to escape with the assailants, police said.
The ultras opened fire on the police party accompanying Jhutt, alias Abu Hanzala, outside the busy hospital in Kaka Sarai area, police said.
A carbine rifle of one of the policemen is reported missing.
The police team was taking six prisoners, including Jhutt, to the hospital for treatment, said Deputy Inspector General (Central Kashmir) Ghulam Hasan Bhat, who visited the scene of the attack.
A red alert has been issued in the city, he told reporters.
According to eyewitness accounts, the militants opened fire as soon as Jhutt, along with five other prisoners and the police team, got off the vehicle outside the Out Patient Department of the 70-year-old hospital.
Two Lashkar militants rained bullets at the police party and fled in a car towards downtown Srinagar.
The hospital, named after Shri Maharaja Hari Singh, the last ruler of the princely state of Jammu and Kashmir, is strategically located on the banks of a tributary of the river Jehlum, with uptown Karan Nagar on one side and Nawab Bazaar in downtown Srinagar on the other.
Jhutt, a school dropout from Borevella district of Multan in the Pakistan Punjab, is believed to be involved in multiple attacks. These include an attack on the Army in Hyderpora in the city, an attack on the Silver Star hotel along the national highway outside Srinagar and three attacks on police and CRPF camps in south Kashmir.
The militant had obtained sophisticated training and was good in handling equipment like compass, GPS, wireless sets and mobile phones installed with Skype software, an official said.
Jammu and Kashmir police wanted to shift him along with five other prisoners from Srinagar jail to other high security jails outside the Valley but was disallowed from doing so by the local courts.
Disclaimer: No Business Standard Journalist was involved in creation of this content
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