An army major and a Hizbul Mujahideen commander were killed in a nightlong encounter in south Kashmir's Bejibehara town on Tuesday morning.
Major Manish Pitambare of the 3 Para regiment was killed in the overnight gun battle.
The police identified the Hizbul commander as Suhail Afzal, divisional commander of the Hizbul Mujahideen, who topped the list of most wanted terrorists.
"Troops of 1st Rashtriya Rifles and a Para regiment of the army cordoned off the Baba Mohalla in the Bejibehara town following a specific tip off," Defence spokesman Colonel A K Mathur said.
"The hiding terrorist sprayed bullets from his automatic rifle at the surrounding troops even as he kept changing location in the densely populated Baba Mohalla. He was located and gunned down early today.
Terming the gunning down of the commander as "a major breakthrough", a senior police officer said he had been responsible for scores of killings and attacks on security forces in south Kashmir's Anantnag district.
A tight cordon is still being maintained around the area for searches to ensure that the slain terrorist had been the only hiding ultra in the area, the police said.
