"Intermittent firing has started at the JKEDI (Jammu and Kashmir Entrepreneurship Development Institute) complex in the morning," a senior police officer said.
"The militants are heavily armed, but they have been surrounded from all sides and their escape is ruled out," he added.
So far, six people, including a civilian, three soldiers and two Central Reserve Police Force (CRPF) troopers have been killed in the fighting.
The gunfight started on Saturday evening when guerrillas attacked a CRPF bus at Sempora in Pampore on the Srinagar-Jammu highway.
They then entered the JKEDI complex and took shelter in the multi-storeyed building.
About 120 trainees and staff members were safely evacuated from the complex before security forces started the flushing out operation against the guerrillas.
The dead include Abdul Gani Mir of Gundipora Pulwama, a JKEDI gardener, Captains Pawan Kumar and Tushar Mahajan and Lance Naik Om Prakash as well as Head Constable Bhola Prasad and Driver Constable R.K. Rana of CRPF.
A CRPF spokesman who initially told reporters that a guerrilla had been killed later denied it.
Meanwhile, authorities on Monday imposed restrictions in Pampore town where dozens of protesters on Sunday indulged in heavy stone pelting as they tried to march towards the JKEDI complex.(IANS)