The firing reportedly began around 6 am when the terrorists attacked the colony, security sources told DawnNews.
In the exchange of fire between gunmen and security forces one civilian and two suspected terrorists were killed, the daily said.
The sound of explosions was heard in the area, eyewitnesses claimed, and a helicopter was spotted conducting aerial surveillance.
Additional contingents of security forces, including police, Frontier Corps and PakistanArmy commandos have been deployed to the area and an operation is ongoing, the daily reported.
The area has been cordoned off.
The colony lies near the Pak-Afghanborder and the Warsak Dam.