Two Indian army soldiers and a suspected militant were killed in a gunbattle in India-held Kashmir, police said on Friday.

Fierce fighting began overnight after Indian government forces laid a cordon around a cluster of homes in southern Samboora village on a tip that 'militants' were hiding there, Superintendent Police Pani claimed.

As the fighting raged, hundreds of residents, mostly young men, hit the streets in solidarity with the 'militants' while demanding the end of Indian rule over Kashmir.

Government forces fired tear gas, resulting in clashes with protesters, who hurled rocks back at the troops. No one was immediately reported injured in the clashes.

Police said at least two 'militants' escaped amid the clashes.

Separatist groups have for years been fighting Indian soldiers deployed in the region, demanding that Kashmir be given independence or merged with Pakistan.

The fighting has left tens of thousands dead ─ most of them civilians ─ and earlier this year, India launched “Operation Allout” to hunt down suspected militants.

BJP activist found dead

In a separate incident, 'militants' killed a political activist associated with India's ruling party, police claimed.

On Thursday evening, police recovered the body of an activist belonging to India's ruling Bharatiya Jannata Party (BJP) in an orchard in the southern Shopian area.

The Hindu nationalist party's president Amit Shah tweeted that he was "pained to learn about the brutal murder."

In October, Indian Prime Minister Narendra Modi's government named ex-intelligence chief Dineshwar Sharma as interlocutor for IHK with “complete freedom” to initiate “interaction and dialogue to understand legitimate aspirations of people in Jammu and Kashmir”.

The move, which goes back on India's three-year-old pledge to never talk to the Hurriyat, is being viewed as small change in the right-wing Hindu revivalist government's Kashmir policy.

However, following Sharma's appointment, Indian Chief of Army Staff Gen Bipin Rawat had said that it would not affect the army's operations in IHK.

The Foreign Office in Islamabad had disapproved of India's initiative, saying that New Delhi did not "appear to be sincere".

The key to meaningful and productive dialogue between leadership in India and IHK is the inclusion of Pakistan, Islamabad had emphasised.