The operation began in Moy yesterday evening.
Some homes have been evacuated following the discovery of the suspicious object, with the Oakfield Gardens area of the town cordoned off.
A local sports club opened its doors to those evacuated.
SDLP councillor Karol McQuade said a controlled explosion had been carried out on the suspect device.
Overnight, police issued an update and said the alert was likely to continue into Saturday morning.
News Catch Up - Friday 8th August
A police spokesman said: "We understand the disruption this has caused, especially for those directly impacted. A local sports club is being used as a rest centre.
"Cordons will remain in place overnight and we ask that the public avoids the area. We will keep you updated."
DUP MLA Deborah Erskine said the alert w