*Machine guns *
The BBC's Zaffar Abbas in Islamabad says it was the fiercest clash between the security forces and pro-Taleban tribesmen since October, when eight foreign militants and two soldiers were killed in the remote border area.
Officials say the fighting started soon after paramilitary forces moved into a village near the town of Wana in the South Waziristan region to arrest local tribesmen who had been accused of providing shelter to al-Qaeda militants.
But they came under attack from two directions as they entered the area and responded using light machine guns and mortars.
It resulted in a pitched gun battle that went on for more than four hours.
Local residents say troops cordoned off the area.
"We are not allowed to go out of our homes," one resident, Qasim Khan, told the Associated Press.
Firing stopped, to be followed by a standoff between soldiers and tribesmen, local journalists said.
Our correspondent says that it is not yet clear if the security forces were able to arrest the wanted tribesmen or any foreign militants.
*US hunt *
The latest military operation came a day after President Pervez Musharraf issued an ultimatum to "foreign" fugitives to surrender.
He told tribal elders in Peshawar that the authorities were determined to flush militants out of the area - with or without the support of local leaders.
South Waziristan is part of Pakistan's western tribal areas - semi-autonomous states which are often described as "no-man's land" - and where the local population is suspected of being sympathetic towards al-Qaeda and the Taleban.
Some tribal elders are angry at what they see as an attack on the autonomous status of the tribal areas - but President Musharraf says the presence of al-Qaeda and other militants is a threat to the security of both Afghanistan and Pakistan.
Tuesday's offensive comes on the eve of a two-day visit to Pakistan by US Secretary of State Colin Powell, who is also due to visit Afghanistan.
Across the border in Afghanistan, US forces have also begun a new hunt for al-Qaeda elements.
Pentagon officials told the BBC that the latest offensive, Operation Mountain Storm, could ultimately involve several thousand troops, as well as supporting helicopters and aircraft.
The BBC's Pentagon correspondent, Nick Childs, says it has long been thought that Osama Bin Laden and elements of al-Qaeda are hiding in the mountainous region separating Afghanistan and Pakistan.