Three people were killed and 7 others wounded in the continuing 7-hour-long gun battle even as security forces stormed the hotel building inside which the militants are holed up and are firing at the surrounding troops.

"Security forces have entered the hotel building and are carrying out room by room searches to locate the militants," said a senior police officer.

"As the security forces entered the ground floor of the hotel building, they came under heavy fire from the holed up militants resulting in the death of one policeman, a member of the Special Operations Group, two other cops also suffered injuries in the encounter," the officer said.

Earlier, police and security forces worked to evacuate scores of shopkeepers, shoppers and those inside the hotel. "Our priority is to evacuate the civilians safely before starting the flushing out operation against the militants," said a senior police officer.

An officer said another policeman was killed in heavy firing exchanges between the surrounding troops and the militants late on Wednesday afternoon.

"The security men are cautiously searching the entire ground floor of the building, room by room now. We are moving very cautiously as the area is densely populated," said a senior police officer.

Intermittent heavy firing exchanges were this evening continuing in the city centre area.

The exchange of fire led to panic in the entire city centre area with traffic coming to a grinding halt and pedestrians and shoppers running for cover. Shopkeepers have pulled down their shutters.

Militant outfit Al-Mansoorian has claimed responsibility for the attack on a Central Reserve Police Force camp in Srinagar's [Images] Lal Chowk area.

With PTI inputs