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The fighting took place in the wake of a fresh military push in the Tirah valley, where the military has been targeting Taliban and Lashkar-e-Islam militia who threaten Peshawar.
Khyber straddles the Nato supply line into Afghanistan, used by US-led troops to evacuate military equipment ahead of their 2014 withdrawal, and officials say it is key to protecting security in Peshawar for historic elections next week.
"In a successful operation security forces last night captured Kismat Sur and Sanghar, two strong hideouts of militants in Tirah Valley," the military said in a statement.
"Sixteen militants were killed in the operation. Two security personnel embraced martyrdom and three were wounded," it said.
Independent verification of the death toll was not possible as the area is cut off to journalists and aid workers.
"Militants were seen fleeing from the area, leaving behind a huge cache of arms and ammunition," the statement added.
Pakistan Army has been fighting for years against homegrown insurgents in the area, which Washington considers the main hub of Taliban and al Qaeda militants plotting attacks on the West and in Afghanistan.
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