Police hunting for an alleged terror leader suspected of masterminding last month's bombings at two Jakarta hotels surrounded a house in central Indonesia on Friday and were exchanging gunfire with militants loyal to him inside, police and a witness said.

Noordin Mohammad Top is suspected in all of Indonesia's major terror attacks, including the suicide bombings at the J.W. Marriott and Ritz-Carlton hotels and blasts on the resort island of Bali in 2002.

Police spokesman Nanan Sukarna said a gunfight was taking place in a village in Temanggung district in central Java. He said "three or four" militants belonging to Noordin's group were believed to be inside.

Sukarna declined to comment on local media reports that Noordin also was in the house.

Noordin is a Malaysian citizen who claimed in a video in 2005 to be Al Qaeda's representative in Southeast Asia and to be carrying out attacks on Western civilians to avenge Muslim deaths in Afghanistan.

While Noordin and his associates are believed to have once had links with Al Qaeda, it is uncertain whether they still do.

Parwito Raffa, a local journalist in the village, said police surrounded the isolated house and were fighting people inside. He said sporadic gunfire had been continuing for several hours and was becoming more frequent.

Indonesian police were met with booby traps and suicide bombers in at least one other raid on a terrorist hide-out, and were likely to approach the house with extreme caution.

Metro TV reported that police arrested two suspected militants in a nearby town earlier Friday who gave them information that led them to the house.

Indonesian police have arrested more than 200 militants associated with the Jemaah Islamiyah terror network since 2002, including many with ties to Noordin, who they say has narrowly escaped capture several times.

Police have offered a $100,000 reward for information leading to his capture. Experts say Noordin is likely being hidden by a small network of sympathizers who might not agree with his tactics, but nevertheless believe they have a duty to shelter him.

Java, home to more than half of Indonesia's 220 million people, has long been the focus in the hunt for Noordin and his associates.

In November 2005, Azahari bin Husin, a top Jemaah Islamiyah bomb maker, was fatally shot by counterterrorism forces in east Java. Sariyah Jabir, another explosives expert, was killed in April 2006 during a raid on a militant hide-out in central Java.

Noordin and his associates are the chief suspects in last month's hotel attacks, in which two suicide bombers killed seven people, mostly foreigners.

Prosecutors say Noordin orchestrated the 2002 bombings on Bali, an earlier attack on the J.W. Marriott Hotel in 2003, a blast outside the Australian Embassy in 2004, and triple suicide bombings on restaurants in Bali in 2005.

Al Qaeda is believed to have helped fund the first three attacks.

Together, the four strikes killed more than 240 people, many of them Western tourists.