"There was an exchange of fire and two of our troops were killed and one injured," a senior Indian military commander in Kashmir told AFP, asking not to be named.[break]
A second source confirmed the deaths.
TV stations, citing army sources, said an Indian patrol was ambushed by Pakistani soldiers inside Indian territory. The Indian army spokesman in Kashmir, R.K. Palta, declined to comment on the incident.
Tuesday´s deaths occurred in southern Kashmir´s Mendhar sector, 173 kilometres (107 miles) west by road from Jammu, the commander said.
In Islamabad, a Pakistan military spokesman denied what he called an "Indian allegation of unprovoked firing". He declined to elaborate.
On Sunday Pakistan said Indian troops crossed the de facto border in Kashmir known as the Line of Control and stormed a military post. It said one Pakistani soldier was killed and another injured.
It lodged a formal protest with India on Monday over what it called an unprovoked attack.
India denied crossing the line, saying it had retaliated with small arms fire after Pakistani mortars hit a village home.
A foreign ministry spokesman said Indian troops had undertaken "controlled retaliation" on Sunday after "unprovoked firing" which damaged a civilian home.
A ceasefire has been in place along the Line of Control since 2003 but it is periodically violated by both sides.
Relations between the nuclear-armed rivals have been slowly improving over the last few years following a rupture in their dialogue after the 2008 attacks on Mumbai, which was blamed by India on Pakistan-based militants.
The latest deaths could undermine recent efforts to build trust, such as opening up trade and offering more lenient visa regimes which have been a feature of recent talks between senior political leaders from both sides.
Muslim-majority Kashmir is a Himalayan region which India and Pakistan both claim in full but rule in part. It was the cause of two of three wars fought since independence from Britain in 1947.
Dead Indian soldier ´mutilated´ in Pakistan attack: army
SRINAGAR: Two Indian soldiers were killed in a firefight with Pakistani troops near their disputed border in Kashmir on Tuesday and one of the bodies was badly mutilated, an army spokesman said.
Spokesman Rajesh Kalia told AFP that Pakistani troops had intruded into Indian territory before the clash began.
An Indian ground patrol "saw something suspicious and then there was a firefight with Pakistani troops", Kalia said by phone of the incident around noon (0630 GMT).
"We lost two soldiers and one of them has been badly mutilated," he added, declining to give more details.
"The (Pakistani) intruders were regular soldiers and they were 400-500 metres (1,300-1,600 feet) inside our territory," Kalia said.
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