Security has been tightened in Srinagar, Indian Kashmir's summer capital, following intelligence reports that a group of militants might have sneaked into the city and were planning a big attack, said a senior police officer who did not want to be identified.

"Shoppers fled in panic after two militants fired indiscriminately on a security patrol," said Farooq Ahmad, a witness in Lal Chowk, the commercial hub of Srinagar, where the shooting took place.

On Sunday, a soldier was killed and five others wounded when suspected militants lobbed a grenade at a security patrol vehicle in Srinagar. The suspected militants managed to escape on both days.

Kashmir is at the heart of the rivalry between India and Pakistan since they won independence from Britain in 1947.

Security officials say militant incursion from the Pakistani side into Kashmir has increased with hundreds of armed men sneaking in before the onset of winter last year.

The two nuclear rivals have fought two wars over the Himalayan region, with India accusing Pakistan of abetting the Kashmir insurgency which according to officials has killed more than 47,000 people since 1989.