Two people died in a shootout early Sunday on the outskirts of the capital Srinagar, a police spokesman said. "We are ascertaining the identity of the two," the spokesman said.
The violence came as a seven-nation South Asian summit got underway in Islamabad, marking the first visit to Pakistan in nearly five years by Indian Prime Minister Atal Behari Vajpayee.
India and Pakistan both hold parts of Kashmir and claim it in full.
A police officer said security was stepped up to prevent rebels from launching attacks during the summit.
"There are some militant groups that do not want a permanent thaw between India and Pakistan and we apprehend they may launch attacks within Kashmir," a police officer said.
South Asian summit
Leading separatist activist Sayyid Ali Gilani said on Saturday while he would support a peace process on Kashmir, he doubted much would emerge from the summit as the South Asian forum had a "limited charter."
"I urge my freedom-loving people not to attach high hopes to the summit. If you do they will be dashed," said Gilani, who heads a splinter group of Kashmiri opposition parties and wants Indian-administered Kashmir to join Pakistan.
Some separatists have urged rebels to call a truce during the summit, but the call was spurned.
Pakistan and India have announced a number of confidence-building measures since April, including a 26 November ceasefire on their borders in Kashmir.
But both India and rebels say the truce does not apply to their operations inside the province.
The latest deaths bring to 207 the number of people killed during the ceasefire, according to police figures. Most casualties have been rebels.