The bodies of the two militants were recovered from the debris of the house at Arwani in Bijbehara area this morning after security forces blew up the building using explosives, a police official said.
He said one of the bodies was severely burnt.
However, an army official said they were still sifting through the debris and a final statement on the incident will be issued once the operation was called off.
One army jawan was injured in the gunfight that began in the early hours yesterday.
A 24-year-old youth died allegedly after being wounded by a "stray bullet" near the site of encounter.
Arif Shah, a resident of Sangam area of Anantnag district, was hit when security forces were dealing with a group which was indulging in stone-pelting near the encounter site, the official said.
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Meanwhile, another youth died near the encounter site in Padgampora during the gunbattle between the militants and security forces.
Jalaluddin (22) was rushed to a hospital in an unconscious state from Padgampora but was declared brought dead at the hospital, a police official said.
