The gunfight broke out at Karan Nagar locality of Srinagar city, the summer capital of Indian-controlled Kashmir.
"A paramilitary troop of CRPF was wounded fighting militants today here," Rajesh Yadav, Srinagar based spokesman of CRPF told Xinhua. "The area has been cordoned off and gunfight is underway."
The wounded CRPF man has been shifted to hospital for treatment.
Yadav said early in the morning at around 4:30 a.m. local time paramilitary troops in the locality repulsed a suicide attack bid.
"Our alert men at the camp witnessed some suspicious movement outside and challenged the suspects by opening fire. However, the duo fled away," Yadav said. "Later on during the searches in the locality, search party came under fire triggering a gunfight."
The militants believed to be two have taken refuge inside a building behind CRPF camp in the locality.
The attack came hours after culmination of gunfight inside a military camp in Jammu.
At least nine people, five army troopers, a civilian and three militants, were killed in a two-day long stand-off inside a military camp, which was stormed Saturday morning.
A guerrilla war is going on between militants and Indian troops stationed in the region since 1989.
Kashmir, the Himalayan region divided between India and Pakistan is claimed by both in full. Since their independence from Britain, the two countries have fought three wars, two exclusively over Kashmir.