The operation 'Assault 16' was jointly carried out by Counter Terrorism and Transnational Crime unit, Special Weapon and Tactic Team (SWAT), Rapid Action Battalion and Chittagong district police in Sitakunda.
The gunfight began after police stormed a two-storey building where militants were staying as tenants.
According to media reports, the suspected militants were apparently killed in "suicide explosions".
The extremists, believed to be operatives of banned Neo-Jamaatul Mujahideen Bangladesh (JMB), hurled grenades and fired gunshots before blowing themselves up. Two policemen also injured during the raid.
"Police launched an operation when the militants started blasting grenades...Explosions rocked the neighbourhood for nearly 10 minutes," a journalist told PTI.
"Several families were living in that house and they were freed after spending the night as hostages," the journalist said.
The building has been cordoned off.
Neo-JMB is said to be inclined to the Islamic State terror outfit which has claimed the responsibility for the deadly July 1, 2016 attack on a Dhaka cafe in which 22 people, including an Indian, were killed.
Earlier, a couple was arrested from a suspected militant hideout at Chittagong's Sitakunda.
Bangladesh witnessed a spate of attacks on secular activists, foreigners and religious minorities since 2013.
The country launched a massive crackdown on militants specially after the Dhaka cafe attack.
Disclaimer: No Business Standard Journalist was involved in creation of this content
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