A Counter Terrorism Department team along with police raided a house yesterday in Aroop police area, some 80 km from Lahore, and asked terrorists to surrender but they opened fire.
The police returned the fire, killing three terrorists while two other militants escaped, a CTD spokesman said.
The slain terrorists, identified as Haji Sadiq, Shahbab and Saleem, belonged to Al-Qaeda, the spokesman said.
Two pistols, a Kalashnikov and some explosive material have been recovered from the hideout.
In another raid, the CTD arrested five terror suspects in Multan.
The CTD said the suspects - Abdul Nasir, Ammar Bilal, Amir Usman, Taimour Rafique and Ishtiaq - are affiliated with Al-Qaeda and Tehreek-i-Taliban Pakistan.
Last week, the CTD killed 14 terrorists of Al-Qaeda and TTP in different parts of Punjab province.
Meanwhile, Shahbaz Taseer, the son of slain Punjab governor Salmaan Taseer, rejected media reports that two terrorists of TTP, involved in his kidnapping in 2011, had been killed in a shootout with the CTD in Sheikhupura district.
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