Police said soldiers and counterinsurgency police raided Naidkhai village on a tip and engaged militants in the gunbattle.

Colonel Rajesh Kalia, an Indian army spokesman, said the operation was swift and that two automatic rifles and some ammunition were recovered from the site.

Shortly after the battle, hundreds of villagers hit the streets to protest against Indian rule in the disputed Himalayan region and chanted slogans like "We want freedom" and "Go India, go back."

The villagers demanded the return of the bodies of the militants for burial. The bodies were being kept in a local police station.

The fighting comes amid heightened tensions along the highly militarised Line of Control that divides Kashmir between nuclear-armed rivals India and Pakistan.

Government forces were also taking extra security measures as the authorities for the first time in more than four months planned to allow Friday congregational Muslim prayers at the main mosque, Jamia Masjid, in the city of Srinagar.

Government forces had blocked worshippers from offering prayers at large mosques on Friday for past 19 weeks amid the largest protests against Indian rule in recent years, sparked by the killing in July of a popular rebel commander by Indian soldiers.

At least 90 civilians and two policemen have been killed and thousands injured, with hundreds among them blinded and maimed, mostly by government forces firing bullets and shotgun pellets at rock-throwing protesters. Curfews, communication blackouts, roadblocks and separatist-sponsored strikes have largely paralyzed public life.

India and Pakistan each administer a portion of Kashmir, but both claim the Himalayan territory in its entirety. Most people in the Indian-controlled portion favor independence or a merger with Pakistan.

Rebel groups have been fighting since 1989 for either independence or a merger with Pakistan. Since then, more than 68,000 people have been killed in the armed uprising and ensuing Indian military crackdown.