Thousands of people are flooding out of Lower Dir as the Pakistan army takes on Taliban fighters in the district.
Civilians were streaming out of the area due to the army's "accurate" and "spread out" assault, a source told Kamal Hyder, Al Jazeera's correspondent in Pakistan, on Monday.
Sufi Muhammad, a religious leader who has been holding peace talks with the central government, has suspended dialogue with Islamabad as a result of the army assault.
"We are suspending talks with the government until the military operation in Dir is halted," Aamir Izat, a spokesman for Muhammad, said on Monday.
Hyder said that Monday's assault was being described by the army as a "retaliatory strike" rather than an operation.
"The military surprised everybody by launching a major assault using paramilitary forces backed by helicopter gunships," he said.
"We are told that attacks by the military have taken out a considerable chunk of the leadership that was operational in Dir.
"This was an area where they [the Taliban] had quietly spread and while they were flexing their muscle in another area, Buner, they had taken virtual control of certain districts in Lower Dir."
The Pakistani miltary says it has killed at least 46 suspected Taliban fighters in air and ground operations in Lower Dir since Sunday.
The district, which lies in the Malakand division of the North-West Frontier province is close to the border with Afghanistan.
"Lal Qila in Lower Dir has been fully secured after the successful operation by the Frontier Corps against the miscreants today," the military said.
The military action in Lower Dir comes weeks after the government allowed the Taliban to implement their interpretation of sharia (Islamic law) in the neighbouring Swat valley, after talks brokered by Muhammad.
Prior to Muhammad's move on Monday to suspend negotiations with Islamabad, a spokesman for President Asif Ali Zardari said that the government would fulfil its pledge to allow the establishment of Islamic courts in the northwest of the country.
But he said that the government, which allowed sharia in Swat in an attempt to limit violent activity in the region, would not permit the fighters to spread their area of influence.
In recent days, fighters from Swat began entering another district, Buner, which lies just 100km from Islamabad, the Pakistani capital.
Later reports suggested that the fighters had begun to pull out after military action was threatened.
Hyder reported on Sunday that: "The military moved in, but they have of course been using maximum restraint because they want this peace deal [in Swat] to work.
"We also got reports ... that the military arrested at least five Taliban who were violating the accord - they were toting weapons in an area of Swat."
Critics of Pakistan's deal with fighters in Swat say that it has only emboldened the Taliban.
The US in recent days has increased pressure on Pakistan to confront fighters on its soil.
General David Petraeus, the head of US central command, said Pakistan's leaders should focus on the looming threat posed by fighters within their borders.
"The most important, most pressing threat to the very existence of their country is the threat posed by the internal extremists and groups such as the Taliban and the syndicated extremists," he said.
Across Pakistan, more than 1,800 people have been killed in a wave of al-Qaeda and Taliban-linked attacks since July 2007.