The operation was carried out at Wani Mohall, after security forces cordoned off the area at 11pm.
Clashes also erupted on Wednesday between students and security personnel in north Kashmir's Sopore town as news about the deaths of civilians in Kulgam spread.
They said a gun battle broke out between the militants and security forces in the early hours.
A police spokesperson said three civilians were killed in the "cross-fire" between militants and security forces. The condition of two of them was said to be critical.
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SKIMS medical superintendent Dr Farooq Jan said the hospital received five injured, including Baramulla SHO Khalid Ahmad. Witnesses added that an Army gunship helicopter was also used during the operation. Both the state police and the Army launched a joint search operation after receiving a tip-off regarding the hideout. Four of them, identified as 16-year-old Bilal Ahmad Tantray, 28-year-old Sharjeel Ahmad Sheikh, 14-year-old Faisal Illahi and 30-year-old Aijaz Ahmad Palla, succumbed to injuries on way to or in hospitals.
Reports claim the civilian killings were caused after the local populace hindered in the operation of security forces. The casualties were reported amid an ongoing gunbattle with the holed up militants. Another civilian is seriously injured.
Meanwhile, mobile internet services have been suspended in Kulgam and Anantnag districts of South Kasmir.
Most Kashmiris support the rebels' cause while also participating in civilian street protests against Indian control.
The latest civilian killings have again pushed Kashmir on the edge with separatists calling for a strike on Thursday and Friday.