The firefight started late Tuesday when suspected rebels hurled grenades and opened heavy gunfire on an army patrol in Pattan, a town just north of Srinagar, Jammu-Kashmir state's main city, said police Inspector General S.M. Sahai.
On soldier was killed in the exchange of fire late Tuesday, and another soldier and a suspected rebel died Wednesday, Sahai said, adding that the battle continued to rage Wednesday evening.
Additional troops were deployed to cordon off the area, he said.
Short exchanges of fire are common in the beleaguered Himalayan region, but drawn-out firefights have become rare in recent months. The last, in early October, killed two army officers and nine suspected guerrillas.
At least a dozen rebel groups have been fighting since 1989 to win Kashmir's independence or see India's two-thirds of the predominantly Muslim territory merge with neighboring Pakistan's territory. More than 68,000 people, most of them civilians, have died since the rebellion began.
There was no independent confirmation of the ongoing clash, and no guerrilla group commented on the report.
India and Pakistan, which both rule parts of Kashmir and claim it in its entirety, have fought two wars over control of the region since they won independence from Britain in 1947.
India accuses Pakistan of funding and training the militants in the Pakistan-controlled portion of Kashmir. Islamabad denies the charge, saying it only gives the rebels moral and diplomatic support.
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