The clash began when security forces, acting on a tip-off, launched a search operation in Araiyan Pind area of the city, Dawn online reported citing Col. (Retd.) Shuja Khanzada, Punjab's minister for anti-terrorism.
The exact figure of militants present in the area could not be established and several of them appeared to have fled, Khanzada said while speaking to media persons.
He said security forces wanted to apprehend the militants alive, adding that terrorism could not be eliminated in a single day.
According to Larore's Superintendent of Police (SP) Nawaz Marwat, the operation started at 2 a.m. during which security forces surrounded the compound where suspected militants were present.
An intense exchange of fire erupted between security forces and militants who used heavy arms and ammunition against the security personnel, Marwat said.
Police sources claimed at least seven militants hiding in the compound were killed during the operation. One security man was also killed, they added.
A fresh contingent of elite force personnel has also been called in to manage the situation.