Bhutanese forces on Tuesday attacked a string of rebel camps in the forested south of the country, destroying several of them.
India, which has long called for Bhutan to take action against rebels taking refuge there, said it was sealing the border to cut off possible lines of retreat.
Indian army Lieutenant General Jitendra Singh Varma told journalists in Calcutta that his troops "are ready and deployed to seal the border".
New Delhi says there are about 3000 guerrillas operating from 30 camps in Bhutan.
Most of the rebels come from two separatist groups battling government forces in India's northeast, particularly in Assam state.
A Bhutanese embassy official in New Delhi said some government soldiers had been wounded in the offensive, but did not say how many. He declined to comment on rebel casualties.
But on Monday, the military commander of the biggest group operating out of Bhutan - the United Liberation Front of Asom (ULFA) - told some of the group's camps had been destroyed and his men had suffered casualties including the death of a captain.
"We earnestly appeal to you to cease the on-going operations against us as all these activities might get in the way of our legitimate struggle"
chairman of the United Liberation Front of Asom
The chairman of the ULFA, which is fighting for the independence of Assam state, appealed to Bhutan on Tuesday to call off the offensive.
"We earnestly appeal to you to cease the on-going operations against us as all these activities might get in the way of our legitimate struggle," Arabinda Rajkhowa said in a statement.
He said the group's camps in Bhutan were for "temporary refuge".