The fighting erupted after Indian troops cordoned off a village in the southern Shopian area overnight on a tip that militants were hiding in a house, the police said.
The trapped militants tried to escape while firing their guns, but Indian soldiers fired back, leading to a prolonged clash.
As the fighting raged, hundreds of residents, mostly young men, entered the streets to support the rebels, chanting pro-militant slogans and demanding the end of Indian rule over Kashmir.
More than 200 militants, 75 police officers and soldiers and at least 40 civilians have died this year, the deadliest since 2010. The surge in violence comes after large anti-India protests and clashes erupted in Kashmir when a popular rebel leader was killed more than a year ago.
Rebel groups want Kashmir to be united, either under Pakistani rule or as an independent country.
In recent years, Kashmiris, particularly young people, have openly supported anti-India rebels and sought to protect them by engaging troops in street clashes during military operations against the militants. Anti-India protests and clashes have persisted despite a warning by the Indian Army’s chief, who said recently that “tough action” would be taken against stone-throwers during counterinsurgency operations.
Anti-India sentiment runs deep in Kashmir’s mostly Muslim population, and most people support the rebels. Nearly 70,000 people have been killed in the uprising and the ensuing Indian military crackdown.