Sources said two vehicles of the security forces were destroyed and a youth was killed in artillery shelling by the security personnel. Three others were injured in the shelling.
Taliban spokesman Muslim Khan claimed responsibility for the attack and said two paramilitary men had been killed.
Military sources said militants had attacked a convoy of security personnel in the Sersenai area in which a soldier was injured. Two vehicles and two shops were also destroyed in the attack, they said.
Security forces later cordoned off the area and imposed an indefinite curfew.
Sources said fierce fighting was continuing till the filing of this report.
The troops fired mortar shells on the positions of militants and as a result a local youth --- identified as Bacha Rehman, son of Bakht Rehman --- was killed and three others were injured.
Meanwhile, more than 70,000 tins of cooking oil were destroyed after a warehouse of the World Food Programme caught fire in the Kanju area in Swat on Monday.
A mosque and a house were also damaged by the fire that engulfed the entire area on the Town Road.
Sources said the cooking oil was meant to be distributed among students to encourage female literacy under a WFP project.
They suspected that the warehouse was set on fire by militants. The fire brigade extinguished the fire after several hours of hectic efforts.