Rising militancy in the area has shaken the authority of President Gen. Pervez Musharraf, a key U.S. ally in the war on terror.
Militants kidnapped and beheaded three paramilitary soldiers and a police officer, then displayed the heads in a village near the resort town of Swat on Friday, said Badshah Gul Wazir, the Home Secretary of the North West Frontier Province bordering Afghanistan.
Hours earlier, the two sides traded fire across the rushing Swat River - using rocket-propelled grenades, mortars and other weapons - after security forces attacked the redoubt of the cleric Maulana Fazlullah, who runs a sprawling seminary in the village of Imam Dheri.
Two civilians and a militant died in the gunbattle, said Swat police official Mohammed Khan.
Pakistan sent 2,500 paramilitary troops to Swat over the past few days to tackle the cleric, who leads a banned pro-Taliban group that sent thousands of volunteers to fight in Afghanistan during the U.S.-led invasion in 2001. The group has re-emerged this year in Swat and Malakand, another impoverished, conservative region near the Afghan border.
As well as marshaling a band of armed militants, Fazlullah has used an FM radio station to campaign against girls' education and to denounce a recent polio vaccination drive as a Western plot to sterilize Muslim children.
"I never saw this type of violence in my life," said Swat shop owner Abdul Hamid, 70, who sobbing as he watched thick smoke rise from a nearby mountain where fighting had also broken out. A forest was ablaze, sparked by rocket fire.
"Swat was one of the safest places in Pakistan, and now it has become Iraq and Afghanistan," he said.
A Fazlullah aide said one of their fighters was killed and four were wounded in Friday's clashes. Police said they had no details on casualties.
"God willing, casualties on their side (security forces) will be more," Fazlullah's aide, Sirajuddin said by telephone from Imam Dheri. He uses only one name.
"We are sitting in our homes and mosque. ... We are defending ourselves. We have carried out retaliation," he said, vowing that Fazlullah's supporters would fight until death. "We have enough heavy weapons."
Pakistan army spokesman Maj. Gen. Waheed Arshad confirmed that army helicopters joined the operation, and that ground forces were ready if needed.
The fighting followed a suicide car bombing Thursday that hit a truck carrying paramilitary troops through a crowded area of Mingora, the main town in Swat district. The attack killed 19 soldiers and a civilian, and wounded 35.
That attack underlined Pakistan's worsening security situation, particularly near the Afghan border, where militants linked to the Taliban and al Qaeda increasingly hold sway and have directly challenged the government by dispensing their own form of justice.
Fazlullah's spokesman denied the cleric's involvement in the bombing, saying he wanted peace in the region and only wanted to impose Islamic law.
The Mingora blast came a week after an assassination attempt on ex-Prime Minister Benazir Bhutto in the southern city of Karachi that killed 143 people. Bhutto planned to travel to her hometown of Larkana on Saturday, her first trip outside Karachi since her arrival last week.