The gunfire started at around 3.30 a.m, police have cordoned off the area and army have been called. Number of terrorists was reported to be around four to six, who were in Army fatigues.
Heavy firing could be heard from the IAF station area till 7.30 a.m.
Security forces were already on high alert in the past 24 hours after an incident in a nearby area where a senior police officer was abducted in his car late Thursday but released later.
Two IAF helicopters could be seen assisting security forces in combing operations.
The Pathankot-Jammu highway was put on high alert by security forces. The entire area near the IAF station was sealed.
"High alert has been sounded in Kathua district and entry into the state from neighbouring Punjab at Lakhanpur is being monitored and checked", said a senior police officer in winter capital Jammu.
Defence sources said army has been moved out on the highway to ensure no militant was able to sneak into Jammu and Kahsmir.
Security forces were put on high alert in Pathankot in Punjab's frontier district Gurdaspur on Friday after a senior police officer said he and his associates were seized by five armed men in army fatigues.
Salwinder Singh, a superintendent of police, said he and his associates were going in his multi-utility vehicle to a religious shrine on Thursday night when they were signalled to stop by the five men.