Indian soldiers shot dead five Kashmir militants including a rebel university teacher in a gunfight on Sunday that triggered protests in which five civilians were killed.
Thousands took to the streets of Srinagar, the disputed territory's main city, to show support for the slain militants and government forces opened fire to break up the protests, director general of police Shesh Paul Vaid said.
Hundreds of people were reported injured in the protests after the siege in which a top commander of Hizbul Mujahideen, a key rebel group, was also killed.
Government forces swooped on the village of Badigam, in Shopian district south of Srinagar, following a tip-off about armed militants holed up inside a house.
The rebels refused an offer to surrender, triggering a fierce gun battle, Vaid told AFP.
A specific appeal was made to Mohammad Rafi Bhat, a university sociology teacher who only went underground with the rebels on Friday.
"We brought his father from his home to persuade him to surrender, but he, like all of them, refused," Vaid said, confirming five rebels died in the firefight.
As news of the trapped militants spread, residents took to the streets shouting pro-separatist slogans, witnesses and a police officer said.
Another police officer, speaking on condition of anonymity, said at least 30 people were injured in clashes with government forces who fired live ammunition, pellet guns and tear gas.
A doctor at a hospital in Shopian said hundreds of injured needed treatment.
"We have reached our full capacity. We have run out of essential medicines, there are no more ambulances," he told AFP.
Fighting this year has left 120 dead, according to officials, including 22 civilians, 67 militants and 28 security forces.
On Saturday, three rebels and a civilian had died in a firefight in Srinagar - the latest in a string of gun battles in recent weeks across the territory disputed by India and Pakistan.
The region is divided between the arch-rival neighbours but claimed in full by both.
India has deployed more than 500,000 soldiers in the restive region to tackle rising militancy as civilian support for the rebels grows.
India accuses Pakistan of fuelling the insurgency, a charge Islamabad denies saying it only provides diplomatic support to Kashmiris' right to self-determination.