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The encounter started at 10 AM after security forces, including army personnel, cordoned off a house at Malik Mohalla in Arwani village following an intelligence tip-off that three militants were present inside, officials said.
Security forces cordoned off the house by 8 AM and there was a patient wait for two hours before the first fire came from the house at 10 AM, they said.
Five civilians received pellet injuries when they made an attempt to stall the ongoing counter-insurgency operation, officials said.
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Mattoo had gained notoriety after he shot dead two policemen in broad daylight at the busy Anantnag bus stand in June 2016. He was seen on CCTV footage carrying out the dastardly act.