A series of loud blasts and bursts of gunfire were heard around the besieged Lal Masjid on Thursday, triggering speculation that Pakistani security forces were trying to storm the mosque.
Officials, however, denied any attempts to forcibly enter the facility.
At least 15 explosions stated to be mortar shells rocked the area in central Islamabad around 0440 IST.
The mortar fire apparently knocked down portions of the wall around the mosque. The explosions were so loud that they virtually woke up people in many parts of the city.
The blasts were followed by repeated announcements through mobile loudspeakers by the troops asking militants to surrender.
"We have surrounded you. Surrender," the announcements said. But no one came out of the mosque as the stand-off entered the third day.
Pakistan Defence spokesman Maj Gen Waheed Arshad denied launching of any operation by troops to storm the sprawling mosque and the girls' madrasa attached to it.
Troops surrounding the mosque and the girls' madrasa also fired several rounds of teargas shells after which the guns fell silent from both sides.
The government extended the deadline for surrender to 0900 IST. The deadline had been extended over seven times on Wednesday, leading to the surrender of 1,200 boys and girls.
After an hour of the heavy explosions, Maulana Abdul Rashid Ghazi, the younger brother of head of the Lal Masjid Abdul Aziz told TV channels over the phone after the explosions that some of the 'students' were injured and a portion of gate of the mosque was damaged.
"Students' morale is high," he said.
Ghazi took command after his elder brother Maulana Abdul Aziz was caught on Wednesday night with his wife while trying to escape wearing a burqa.
In a live interview with Geo TV, an unfazed Ghazi said that there were still over 1,000 militants were holed up in 'defensive positions' in different parts of the mosque and the girls' madrasa attached to it.
"My main concern is that there should not be bloodshed. The government has no concern. They are drunk with power and authority," he said.
Accusing the troops of firing at the 'mosque to show the state's power', Ghazi said he wanted to strike a compromise and informed Shujaat Hussain, the ruling Pakistan Muslim League-Q president but declined to reveal the details.
Apparently he proposed to vacate the public library next to mosque, which the militant students occupied in January in protest against the government's orders to demolish 81 unauthorised mosques in Islamabad.
He, along with his brother, apparently wants to retain control of the mosque and boys' and girls' madrasas.
The government, however, ruled out any negotiations with them and asked him and the remaining militants to surrender.
He also does not want to surrender to troops as directed by government but wants lay down weapons in front of a council of clerics.
Ghazi denied allegations that he was preventing a number of women and children wanting to surrender.
"If that is the case how did 1,200 students leave us on Wednesday," he said.
Parents of those youth who remained inside alleged that their wards were being held up but those who chose to stay back took the decision on their own accord.
"Parents are double minded. So we left the decision to students," he said. "From our side those who want to go can go."
Till Wednesday, bodies of five persons who were killed in the firing from troops remained in the mosque. But they were sent back he said without giving details.
A body of an old man who was killed when he came for prayer was remained, he said. Also he said the 'students' took defensive positions. "There is no offensive firing from our side," he said.
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