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The encounter began after militants opened fire on security forces who were carrying out a search operation in Satoora forest area of Tral, 36 kms from Srinagar.
The action was taken in view of a strike called by separatists to commemorate the death anniversary of 21 persons who were killed allegedly in firing by the Dogra army on 13 July, 1931.
The restrictions are imposed in the old city as a preventive measure in Rainawari, Khanyar, Nowhatta, M.R. Gunj and Safa Kadal area.
Three soldiers and two Islamists were dead after the insurgents opened fire on a Military vehicle convoy on Monday.
The protest shutdown was called against the Goods and Services Tax implementation by the JKCC.
The security forces used explosives to blast a house in Anantnag district killing two holed-up LeT militants including Bashir Lashkari who was behind the killing of five policemen last month.
A mob had lynched DSP Ayub Pandit outside the city's biggest mosque in Nowhatta area where he was deployed on access control duties to protect the devotees offering prayers.
A 35-year-old man from Karnataka was arrested for raising pro-Pakistan slogans while celebrations erupted in Kashmir with separatist leaders congratulating Pakistan for clinching the title.
Earlier on Friday, protests started in the village to disrupt the operation of security forces against the militants.
Thieves fled away from the Srinagar-Jammu national highway with the ATM of the HDFC bank.
The Army and police on Monday busted a Hizbul Mujahideen module in Jammu and Kashmir's Handwara district, arresting two militants and two supporters.
The hackers identified as SH 11 Team Pak Cyber Skullz carried out the attack, hours after the Indian cricket team defeated Pakistan in Champions trophy match.
BJP National Vice-President and J&K In-charge, Avinash Rai Khanna said the feedback of the workers for party's participation in the forthcoming elections in Valley was sought.