The clash occurred in Gilgit-Baltistan when troops raided a hideout of militants in Tarel valley in village Gayyal near Chilas at a tip-off, army said.
"Three wanted terrorists were killed by security forces in a successful IBO (Intelligence-based Operation)," according to the statement.
Two security forces personnel were alos killed in exchange of fire, it said.
A search operation is still underway, it added, and security forces have cordoned off the site in Gayal village.
The affiliation of the militants was not known but the area is known haunt of terrorist linked with anti-Shiite Lashkar-e-Jhangvi and Tehreek-Taliban-Pakistan. Both groups are banned in Pakistan.
The latest killing came after five terrorists were killed last night when they attacked a military check post in Khyber Agency, army said.
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