Junaid Mattoo, a resident of Khudwani village in Kulgam, was acting as the district commander of Lashkar-e-Toiba, police said.
Sources in the security agencies term it a disturbing development, as in the early 1990s, suspicion of militants presence at funerals had led to security forces opening fire that resulted into many casualties.
Simultaneously, militants in another part of the state laid an ambush and killed six policemen, including a Station House Officer (SHO) of the Achabal police station.
The militants who ambushed a police party at Achabal in Anantnag district of South Kashmir disfigured the faces of the six cops slain in the attack before walking away with their weapons. The other two militants were identified as Nasir Wani and Adil Mushtaq Mir.
Sources said half a dozen militants of LeT and Hizbul Mujahideen appeared in the funeral of Mattoo and offered a gun salute. The three were hiding inside a house in Anantnag's Arwani village.
In occupied Kashmir, Hurriyet leaders and organizations have strongly condemned the killing of three civilians - one at Rengrath in Srinagar and two others at Arwani in Kulgam in the firing of Indian forces on protesters.More news: Relatives Of London Fire Victims Unleash Their Fury Upon Theresa May
"Junaid was also involved in the killing of an assistant sub-inspector and a constable near a bus stand in Anantnag past year", he said.
J&K DGP S P Vaid termed Junadi's killing as a major achievement for forces and a jolt for Lashkar. However, no injuries have been reported so far, area cordoned off. Police sources said the incident took place on the Jammu-Srinagar highway in Bijbehara area.
A gunshot was heard near a CRPF camp on Saturday morning, triggering panic in the area, a police official said.
Two other youth - Muhammad Ashraf, 22 and Ahsan Dar, 14 - were also killed yesterday after the troops opened fire to disperse demonstrators who were protesting in the area against the military operation.
Normal life came to a grinding halt in Kashmir Valley on Saturday following separatist groups' call for shutdown against civilian killings and traders' opposition to implementation of GST.