The Baloch Liberation Army (BLA) fired at the Jaffar Express Train as it travelled from Quetta to Peshawar.
The separatist group said it had bombed the track before storming the train in the remote Sibi district, claiming the train was under its control, BBC reported.
At least 16 militants have been killed and 100 passengers were freed as of Wednesday morning, local media reported. The BBC has not been able to independently verify those figures.
Among those released are 17 injured passengers, who have been admitted to hospital for treatment.
The militants had threatened to kill hostages if authorities did not release Baloch political prisoners within 48 hours, according to local reports.
The rescue operation is ongoing.
There were reports of "intense firing" at the train, a Balochistan government spokesman told local newspaper Dawn on Tuesday.
A senior police official said it "remains stuck just before a tunnel surrounded by mountains", the report added.
MA/PR