The law enforcers also recovered rifles and grenades from the place, they added.
The police said militants opened fire on the security forces when they laid siege to their hideout. The fire was retaliated, in which two militants were killed. The militants were identified as Khalil and Ehsan.
The police said the slain terrorists were involved in attacks on security forces and several other sabotage activities, including an attack on a police mobile van a few days ago, in which five policemen were martyred and seven others were injured.
They said the terrorists were planning attacks on the police and other security forces.
Two Kalashnikovs, two grenades and five magazines were recovered from the site.