Army troops fired rockets and mortars targeting the militants' cave hideouts in Bhati Dhar forest area near the Line of Control in Mendhar tehsil of Poonch district, defence sources said.
The Army, along with special forces and commandos of the state police force, is planning to conduct surgical operations to destroy the hideouts and neutralise the terrorists, who have taken positions in natural cave-type fortified bunkers in the area in the last 90 hours, they said.
During the gun-battle which resumed on Monday morning, huge smoke clouds was seen in and around the caves in which terrorists have taken shelter after rockets and mortars were fired, they said, adding that two jawans received minor splinter injuries in the operation.
Despite heavy fog and poor visibility hampering the operation, "a major assault has been launched today morning to destroy the cave hideouts", a defence source said.
Over 10 terrorists are hiding in the area and decoded intercepts have revealed that some top commanders of Jaish-e-Mohammad, Al Badr and Lashkar e Tayiba were holed up inside the hideouts, it said.
Seven persons, including three security men JCO Subedar Rakesh Kumar, Naik P K Singh and SPO Naresh Kumar -- and four terrorists were killed in the operation which began on New Year's day.
"We will not allow them to escape from the spot. The operation will finish after the recovery of their bodies," the source added.
Apart from Romeo Force's 29th unit, 26 Rashtriya Rifles and Special Operation Group of Jammu and Kashmir police, authorities have rushed para-units of special forces to the area besides some additional troops, the sources said.
Four terrorists have been killed but their bodies have not been recovered so far, Northern Command spokesman Col D K Kachari said.
The police have arrested a retired assistant sub-inspector, Muzaffar Shah, from Bhati Dhar for allegedly helping the terrorists in taking shelter in the area, the sources said.
During preliminary interrogation, Shah revealed that terrorists used the caves for making solid bunkers over the past four years and a large number of ultras from different groups have taken shelter there.
Also, a woman identified as Muneeza Begum, an anganwadi worker and wife of an NRI Mohammad Shafiq, was also arrested from Thara village in Mendhar for her alleged involvement in providing support to terrorists, they said.
