Eight militants were killed in the ongoing skirmish in the tribal region of Bajaur, officials said, and two Pakistani soldiers were wounded.
Local military officials said the militants had taken up positions in the village of Katkot in the Mamund area, and were surrounded by Pakistani forces.
"The militants attacked the village, focusing on government buildings. Security forces have surrounded them and have called in gunship helicopters as well, but are not resorting to heavy weapons because of the presence of civilians," said Abdul Jabbar Shah, the top government official in Bajaur.
"They are effectively holding the village hostage."
Bajaur is one of the tribal regions near the Afghan border. The Pakistan military has mounted recent offensives there against the al Qaeda-linked Pakistani Taliban, which is considered the country's biggest security threat.
Last month Pakistan blamed NATO and the Afghan military for failing to act against militant safe havens in Afghanistan, following a cross-border attack that killed 13 Pakistani troops.
The attack followed years of calls by the United States for Pakistan to eliminate safe havens for militants on its side of the border.
Pakistan says it is being unfairly blamed for supporting insurgents in Afghanistan, and that the attacks from Afghanistan show how hard it is for any government to control the mountainous region along the border.
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well done Pak army crush them
The difference is that in Afghanistan they are hiding --- in Pakistan they live openly with the State using it's sovereignty argument to give them de facto sanctuary.