Police had surrounded the school in the remote village of Domail while tribal elders were negotiating with the militants, who have demanded safe passage in return for freeing the captives, they said. The school, whose pupils are mostly aged between eight and 12, is near the northwestern border with Afghanistan, where Pakistani forces have been locked in fierce fighting with Al-Qaeda and Taliban militants. "About seven terrorists have taken the school children hostage. There about 200 to 250 children," Interior Minister Hamid Nawaz told AFP. "The terrorists are demanding safe passage, the provincial government is in negotiations with them. We hope that the matter will be resolved peacefully," he added. The incident comes amid a tide of violence in Pakistan since the assassination of former premier Benazir Bhutto that has raised fears for the country`s stability ahead of key elections on February 18. Militants holed up at the school, about 250 kilometres (155 miles) west of Islamabad, after they abducted a health worker in the village and drove off with him, police said. Police gave chase and in the ensuing shoot-out one militant was killed and a policeman was wounded, while the medic escaped, senior local police official Shakirullah, who goes by one name, told AFP. "They have taken the school children hostage, we don`t know how many but we think it is in dozens," Shakirullah added. "Officials are on the spot and conducting negotiations." District police chief Dar Ali Khattak said the militants "have all types of weapons like rocket launchers and grenades." The army was ready to help them but had not yet been called in, he said. "We have been told by local people there are more than 250 children. Negotiations are underway to secure their peaceful release," he added. Militants in northwest Pakistan have increasingly resorted to kidnappings and hostage-takings to press their demands for Islamic Sharia law and an end to military operations in the region. Pakistani forces on Sunday said they had seized control from the militants of a key road tunnel that links the district where the school is located to the main northwestern city of Peshawar. But a soldier died in fierce fighting that continued on Monday in the nearby tribal area of South Waziristan, where Pakistani officials say the key suspect in the murder of opposition leader Bhutto is hiding out. Islamist warlord Baitullah Meshud denies any involvement in her killing but fighting in his mountainous fiefdom has escalated since the killing of Bhutto on December 27.