The bodies of three Lashkar-e-Taiba (LeT) militants killed in an encounter with security forces were recovered from Arwani area of Bijbehara on Saturday.
The militants started indiscriminate firing at the police party using their assault rifles.
Two civilians were also killed after forces opened fire to disperse protesters and stone-pelters trying to shield the militants and disturb the anti-militant operation.
Mattoo, who was involved in several attacks on security forces in south Kashmir, and two other terrorists were gunned down in a joint operation involving the Army, Special Operations Group (SOG) and the CRPF.
Thousands of people also participated in the funeral prayers of slain Lashkar-e-Toiba militant Adil Mushtaq Mir at his ancestral village in Frestbal area of Pampore.
Matoo, 19, was among the 12 most wanted militants in the Kashmir Valley and was a new-age Kashmiri militant who joined the LeT instead of the Hizbul Mujahideen.
The Pentagon apologized for the incident in a statement to BBC and said an investigation is underway. Some years ago, these green-on-blue insiderattacks on the global services were the major problem.
A shutdown was called by the separatist leaders in the Valley to protest the killing of two civilians in an encounter on Friday in south Kulgam district. Mourners jostled to touch the faces of militants as they raised their guns to offer a gun salute to the fallen District Kulgam commander of the LeT.
A police official said security forces during search of debris of a house that was damaged in yesterday's gunfight between militants and security forces in Arwani village recovered bodies of three LeT militants. The victims were travelling in a police jeep on the Anantnag-Achabal road when the incident occurred.
In a message sent out from Central Jail, JKLF Chairman Yasin Malik said that "our young ones", pushed to wall by military and police might are left with no choice "but to sacrifice their lives for dignity and freedom". The Hindu reports the number of the deceased policemen as eight. The other deceased officers include constables Sharik Ahmad and Tanveer Ahmad (Budgam district), Sheraz Ahmad (Achabal), Asif Ahmad and Sabzar Ahmed (Anantnag).
Separately on Friday, an Indian soldier was killed at a post in southern Naushera when Indian and Pakistani troops traded heavy fire at the Line of Control (LoC).
"The Indian Army retaliated strongly and effectively", he said. Two injured persons succumbed to their injuries later on Friday.