The militants were targeted in Musa Pak area of Muzaffargarh in the south of Lahore after a tip-off about their presence in a building.
District police officer Zamir ul Haq told media that police raided a house on Mehmood Kot Road of the locality which later led to a gun battle with militants.
"Four militants were killed in the exchange of firing. Three policemen were also injured," Haq said.
Police also recovered four suicide jackets, 12 rockets, 40 hand grenades, 328 kilogrammes of explosives from the house.
Another police official said at least four militants escaped and police were searching for them.
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