Security forces rescued three children and a woman, who were held hostage during a gunbattle in which three civilians, an army officer and a guerrilla were killed Wednesday in this winter capital of Jammu and Kashmir.

The militants, holed up in a house in Chinore on the outskirts of this city, took six civilians hostage Wednesday morning. The police said they were trying to rescue the two remaining hostages before launching an assault on the guerrillas.

The police said three terrorists had crossed into Jammu and Kashmir from the Kanachak sector of the border with Pakistan Tuesday morning. They were intercepted at the police check post of Chinore Wednesday morning, about 20 km north from the centre of Jammu. 

The militants, dressed in police uniforms and carrying AK-47 assault rifles, shot dead a junior commissioned officer and then hijacked a three-wheeler. They then fired indiscriminately killing Shabeet Hussain, a milk man, and motorcyclist Naseeb Singh before killing the three-wheeler driver, Vijay Kumar, said the police.

The guerrillas then entered a house in Chinore. Police and army personnel cordoned off the area and were engaged in a gunbattle with the militants. 

Once the remaining hostages were rescued, there would be a "final onslaught", said an army officer, which in military terms means blowing up the building with rocket launchers or explosives.

"This (civilian hostages) is what is holding us up from launching final onslaught. We are ready for that," the army officer on the spot told IANS.

Army personnel have taken positions on roof tops of adjoining houses in densely populated Chinore, located on a hillock.

Grenade explosions and gun shots were heard in the area as the one-storey building where the militants were hiding was perforated with bullet marks.

"A high alert has been sounded in Jammu due to the terrorist infiltration from across the border," said Inspector General of Police (Jammu Zone) K Rajendra.

The Border Security Force (BSF), along with police and army personnel, had launched a massive manhunt for the militants, who had entered the Indian territory at Kanachak, about 20 km north of here, after cutting the barbed wire fence Tuesday.

"This is a serious situation. The intruders sneaked into the Indian side under the cover of fire, which was most probably provided by the Pakistani Rangers," a BSF official said.

This is the second major gun battle in Jammu region in less than three and a half months.

Six people were killed in Samba town, 40 km south west of Jammu May 11. According to defence sources, militants had infiltrated May 8 from across the international border in Samba sector before they surfaced May 11 morning and killed civilians and soldiers. Three militants were killed in that battle.

Meanwhile, the group spearheading the agitation in Jammu for the re-transfer of land to Amarnath shrine board on Wednesday postponed its public rally in the wake of the situation prevailing due to the killing of three people by militants.

"The rally has been cancelled based on the request of the authorities in view of infiltration of militants and their attacks on outskirts of the city in which some people were killed," Shri Amarnath Yatra Sangarsh Samiti leader Naresh Padha said in Jammu.

The samiti had planned to hold a public rally at Parade Grounds in Jammu on Wednesday.