India's military says it has conducted "surgical strikes" on suspected rebels in Pakistan it suspects of preparing to infiltrate into the part of Kashmir it controls, a claim denounced by the Pakistani army as an "illusion".

Tensions remain high between the two nuclear-armed neighbours in the wake of killing of 18 Indian soldiers nearly two weeks ago.

Lt General Ranbir Singh, the Indian army's director general of military operations, told reporters on Thursday that the strikes were launched on Wednesday following "very specific and credible information that some terrorist units had positioned themselves to infiltrate".

Singh said the strikes had caused significant casualties, and that he had called his Pakistani counterpart to inform him of the operation.

An army source told Reuters news agency that the strikes were launched across the Line of Control (LoC), or de facto border that divides the disputed region of Kashmir.

In response to India's statement, Pakistan insisted that the incident was not a "surgical strike" but "cross-border fire".

"The notion of surgical strike linked to alleged terrorists' bases is an illusion being deliberately generated by India to create false effects," the Pakistani military said in a statement.

It also confirmed confirmed that two of its soldiers had been killed in the exchange of fire across LoC.

In a statement, Pakistani Prime Minister Nawaz Sharif "strongly condemned the unprovoked and naked aggression of Indian forces" and vowed the military was capable of thwarting "any evil design to undermine the sovereignty of Pakistan".

An Indian army spokesman confirmed that there had been shelling from the Pakistani side of the LoC into the Poonch district of Indian-administered Kashmir.

Both India and Pakistan claim the disputed region of Kashmir in full, but govern over separate parts of it, divided by the heavily militarised LoC.