But there was little sign that taking the land back from the revered shrine would appease either Hindus or Muslims.
Indian police fired at Hindu activists in Jammu, a predominantly Hindu city in India's mainly Muslim Jammu-Kashmir state, on Tuesday injuring at least three people, Kondaveeti Rajendra, the area's police chief, said.
Supporters of a leading Hindu nationalist party threw rocks and forced shops, businesses and schools to close for a second consecutive day.
Meanwhile in Srinagar, the main city in Indian Kashmir, thousands of Muslim protesters marched to the central mosque while chanting anti-India slogans.
An 85-year-old man was killed during clashes in Budgam, a town 30km northwest of the city.
Authorities had unsuccessfully tried to quash the protest in Srinigar by detaining five separatist leaders earlier in the day.
The unrest began two weeks ago when the state government transferred 99 acres of land to the Shri Amarnath Shrine Board, a trust running a Hindu shrine.
Muslim leaders led mass protests denouncing the land transfer as a plot to build Hindu settlements in the area and alter the demographics in the Muslim-majority region.
Indian officials had dismissed the allegations, saying India has never tried to encourage Hindu migration to the region, the country's only Muslim-majority state. The Indian Constitution prohibits outsiders from buying land in Kashmir.
Al Jazeera's Divya Gopalan, who recently returned from Kashmir, said: "People have already expressed their dissatisfaction with the government because there has been a lot of political play-making leading up to the elections last October.
"A divide has been made amongst the Muslim and Hindu population that hadn't existed before," she said.
Gopalan said that Muslims believe what the Kashmir courts did two weeks ago was give preference to the Hindu population while the reversal of the decision has let Hindus believe the courts are now showing favoritism to the Muslim majority.
Muslim activists had linked the plan to the larger issue of independence for Kashmir or its merger with neighbouring Pakistan.