Prabhakar Tripathi, a spokesman for the Central Reserve Police Force, said: "We exercised maximum restraint. Our soldiers opened fire only in self-defence after the protesters tried to torch the bunker."
Al Jazeera's Prerna Suri reporting from Srinigar, said: "The violence couldn’t have come at a more worse time for the people of Kashmir. It's peak tourist season and families live entirely on tourism. They say if violence spreads, the only ones to suffer will be them."
The demonstration swelled after the shots were fired, when hundreds more people poured into the streets, chanting "We want freedom" and "Indian forces leave Kashmir".
Anti-India sentiment runs deep in Muslim-majority Kashmir.
Opposition groups have been fighting since 1989 for the Himalayan region's independence from India or its merger with neighbouring Pakistan.