Two LeT militants were killed in the overnight gun-battle in Chenigam village of Kulgam district, a police spokesman said.
He said the slain militants have been identified as Mohammad Abbas Malla alias Khatab and Manzoor-ul-Haq Malik, both residents of Kulgam.
"An AK rifle and an INSAS rifle have been recovered from the encounter site," the spokesman said.
After the bodies of the militants were recovered, firing started again at the scene of the encounter, resulting in injuries to three security force personnel and a civilian, he said.
However, local residents contested the police claim saying Bhat was shot at by retreating security forces from the scene of encounter when they came under stone-pelting by youth demanding the bodies of slain militants.
The police spokesman refused to comment on the claims of the local residents.
He said two army personnel and a CRPF jawan were injured in the fresh firing at the spot that also resulted in injuries to the deceased civilian.
The spokesman said the slain militants were involved in several militancy-related incidents in south Kashmir for the past couple of years.
"Malik was involved in the killing of Nasir Mir of Shopian in May this year, besides being involved in Lavdora attack," he added.
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