The gun and grenade attack on Friday night in Sajroo village, 160 kilometers (100 miles) north of Jammu, the state's winter capital, came despite an increase in security in the region to prevent attacks ahead of India's Independence Day celebrations on Monday.
Five people were killed and nine others were wounded, said Deputy Inspector General of Police Satbir Gupta, adding that three of the injured were in serious conditions.
He said the insurgents attacked the two families as they ate an evening meal together.
Gupta said the killers were from one of about a dozen Pakistan-based groups that have been fighting security forces in India's portion of Kashmir for the Himalayan region's independence or its merger with Muslim Pakistan. He gave no evidence to back up that claim.
More than 66,000 people, mostly civilians, have been killed in the conflict since it began in 1989.