The announcement came in advance of the Indian leader's two-day visit to the state starting on November 17.
"During the past several months, the Indian army and other security forces deployed in the state of Kashmir have achieved success in bringing about an improvement in the security situation in the state," said a statement issued by the prime minister's office on Thursday.
"In recognition of the improvement in the situation in the state, the government has decided to reduce the deployment of troops this winter."
But the statement said the prime minister, whose Congress party-led coalition government won general elections in May, would continue to monitor the situation closely to assess any rise in "militancy".
Pakistan, whose President Pervez Musharraf last month publicly outlined a formula to resolve the Kashmir dispute, has welcomed the Indian decision.
"We do not know the level of intended troops reduction, but on the face of it we welcome the move as confidence-building measure," Pakistan military spokesman Major-General Shaukat Sultan told AFP.
Musharraf (R) and Singh have
vowed to continue peace talks
Sultan, who is also press secretary to President Pervez Musharraf, said the details of how many troops India might withdraw and in which sectors of the disputed territory were yet to be known.
Pakistan foreign ministry spokesman Masood Khan also hailed the cutback.
"We welcome the decision by the Indian government and the announcement by Prime Minister Manmohan Singh. It is a step in the right direction," Khan told New Delhi television station NDTV.
"I think in the overall context, this decision is a positive decision," he added.
India, which administers the southern two-thirds of Kashmir, has fought two of its three wars with Pakistan over the territory since independence from British rule in 1947. Both sides claim it in its entirety.
The Indian prime minister's announcement has evoked mixed reaction from local political groups.
"It shall have no impact on the ground situation," Sayid Ali Shah Jilani, who heads what Indians consider the hardline faction of the Hurriyat Conference, an amalgam of separatist Kashmiri parties and groups, told Aljazeera.net.
He insisted on a complete troop withdrawal. "If India is sincere, it must at least recall its more than 700, 000 troops back to barracks and then initiate necessary measures to ensure the lasting peace is returned to the state," he said.
Separatist leader Sayid Jilani said
he wants total troop withdrawal
Sayid Jilani repeated his demand that either the relevant resolutions of the UN Security Council be implemented or the representatives of the Kashmiri people be invited to talks between India and Pakistan to arrive at an amicable solution to the 57-year-old dispute.
Furthermore, he called for the revocation of the Disturbed Area Act and Armed Forces (Special Powers) Act that give sweeping powers to Indian security forces for dealing with the 16-year-old rebellion in Kashmir, and also for the release of all political prisoners.
By contrast, the rival faction of the Hurriyat Conference, led by Kashmir's chief Muslim cleric Mirwaiz Umar Farooq, an assumed moderate, welcomed Singh's announcement.
"It is a good step that the government is reducing troops in the state," the Mirwaiz's colleague Moulvi Abbas Ansari said.
Ansari, who led two rounds of peace talks the Hurriyat Conference's moderate faction had held with the Indian government earlier this year, said however he was not sure whether the cutback decision applied to troops guarding the border with Pakistan or those deployed in the hinterland.
"It is a good step
that the government
is reducing troops
in the state"
Moulvi Abbas Ansari,
Additionally, he said Indian troops and other security forces should change their "brusque and unfriendly attitude" towards the local population.
For his part, Kashmir's chief minister, Mufti Muhammad Sayid, said the Indian prime minister's announcement was a major step after the cease-fire on the borders declared by the former BJP-led Indian government a year ago.
Mufti Sayid added that the step would be very helpful in order to take forward the ongoing peace process within and normalisation of relations with Pakistan.
In Kashmir valley, though, there was no let-up in violence on Thursday. At least five Muslim fighters were killed in separate clashes with Indian troops in different parts of the state, police said.
The biggest gun battle of the day was a surprise attack by armed separatists on a camp of India's paramilitary Central Reserve Police Force (CRPF) in Kashmir's summer capital, Srinagar, just hours after the Indian prime minister's troop strength-reduction announcement.
Four members of the CRPF were injured in the attack, officials said.
Thursday's gun battle in Srinagar
is the latest in continuing attacks
Unofficial reports said that one of them died in hospital later.
In the policemen's retaliatory fire, one of the fighters was killed, CRPF officials said.
They said a two-member fidayeen group forced its entry into a hotel in Srinagar's tourist-frequented Dal Gate area, requisitioned as temporary barracks by the force soon, after local Muslims had broken their daylong Ramadan fast on Thursday.
They threw bombs and fired automatic assault rifles to target the sentry and other policemen guarding the camp. The surprise attack caused commotion within the premises, but after the initial disorder the policemen took up positions to launch a counter-attack.
"We quickly killed one of the terrorists whereas his accomplice is still inside the building firing aimlessly," said an officer overseeing the operation.
The area has been sealed off by hundreds of police and paramilitary personnel who are preparing for a final assault against the holed-up fighter as reports last came in.
Kashmir Freedom Force, an obscure group, has claimed responsibility for Thursday's fidayeen attack.
Indian security forces in Kashmir
are separatists' target of choice
A man who claimed he was speaking on behalf of the group, told Kashmiri language newspapers over phone that four CRPF men were killed instantly. He identified the slain fighter as Ilyas Bhai and his accomplice as Majid Bhai.
Indian officials said they suspected both the attackers were either Pakistanis or from some other country. "They are certainly not locals," an official said.
Police said that in renewed violence elsewhere in Indian-administered Kashmir five separatist fighters and two civilians have been killed.
Two of the slain fighters belonged to the indigenous group Hizb al-Mujahidin while another to the outlawed Lashkar-e-Tayyaba group, the police said.