Thai police and soldiers shot dead at least two Muslims what they suspect "fighters" Tuesday in an alleged 20-minute gun battle outside the city of Yala.
A joint army-police force surrounded them after receiving "intelligence" that insurgents had entered the village, an official said.
"There was an about 20-minute gun battle in which at least two insurgents were killed," he said.
Local Muslims oppose emergency rule Thai government extended and the presence of thousands of soldiers deployed including Thais armed by the state.
Three provinces of Yala, Narathiwat and Pattani were once an independent Muslim sultanate until occupied by predominantly Buddhist Thailand and Muslims never accepted Thai rule since then.
Human rights groups have previously accused Thai authorities of major abuses in the south, including the use of unnecessary force in the 2004 siege of a mosque in which 32 suspected insurgents were killed.