Heavy exchange of fire took place during an operation to clear suspected militants from the mountainous Banda area of Salarzai town in Bajaur Agency, local and security officials said.
"Two soldiers and an army captain have been killed while seven militants were also killed in the clash," a security official told AFP, adding that two soldiers were wounded.
Frontier Corps and local tribal police had launched a house-to-house "search and cordon operation... to clear the area of militants" early on Monday, the official told AFP.
A group of militants attacked them in the afternoon triggering "a heavy exchange of fire which lasted for several hours", the official said, requesting anonymity as he was not authorised to talk to media.
The clearance operation is still ongoing with intermittent gun fire, the official added.
The mountainous Banda area is considered to be a particular stronghold of militant groups, a senior government official in the area said.
Pakistan has strengthened its anti-terror strategy in the wake of a December 16 attack on an army-run school in Peshawar that killed 150 people, 134 of them children.
Troops have been engaged in a full-scale offensive against Taliban and other militants in North Waziristan and Khyber tribal districts since June 2014.
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house-to-house “search and cordon operation is THE most dangerous and time consuming part of Counter Insurgency Operations.
Salute to the martyrs of Pak Armed Forces.
regards,
We are indebted to our brothers who sacrificed their today for our tomorrow. Respect for the martyrs and their noble families!
It should be three soldiers 'martyred'.