Security guards at the heavily guarded residence of the chief minister, Mufti Muhammad Sayeed, opened fire after a grenade was hurled at the house in the provincial capital of Srinagar.
Witnesses said troops were locked in a gunbattle with unknown men holed up in a nearby shopping centre opposite the chief minister's residence.
Live television pictures showed at least one soldier lying on the ground and others running through the streets, accompanied by the sound of automatic gunfire.
Local reports said that two Indian security personnel have been killed in the shootout.
There were conflicting reports about whether the chief minister, elected only a year ago, was at home during the attack.
The Indian news-agency PTI reported that Sayeed was away.
But some other television reports said he was at home and is safe.
The attack is the latest in a rising cycle of violence that has undermined efforts to restore relations between India and Pakistan, which came close to war over Kashmir last year.
New Delhi accuses Islamabad of sponsoring Kashmiri fighters, a charge that Pakistan denies.