The protesters marched through Kupwara, a town nearly 90 kilometers (55 miles) north of Srinagar, the summer capital of India's Jammu-Kashmir state, forcing shops and businesses to shut down for the day, said Vijay Kumar, the local police chief.
Chanting "down with police" and "we want independence," they threw rocks at police when they tried to prevent them from marching through the town.
Police fired warning shots after they failed to disperse the protesters with bamboo sticks and tear gas, Kumar said. No injuries were immediately reported.
The protesters disputed the police claim that they killed three suspected militants in a gunbattle Thursday close to the headquarters of the army's infantry unit in Kupwara. A female school teacher who was passing through the area was wounded in the shootout and later died in a hospital.
They alleged that police arrested three youths, brought them to the area and later killed them in a fake gunbattle.
Kumar denied the charge and said the three were killed before they could attack the army camp.
Separately, nearly 150 protesters, led by hard-liner Syed Ali Shah Geelani, marched peacefully through the main business center of Srinagar after Friday prayers, accusing government forces of human rights violations.
Geelani heads a pro-Pakistan faction of Kashmir's main separatist grouping, All Parties Hurriyat Conference.
Anti-India sentiment runs deep in Kashmir, India's only Muslim majority state, where nearly a dozen rebel groups have been fighting since 1989 for independence from mainly Hindu India or a merger with Muslim Pakistan.
Government forces are often accused of killing and torturing people they suspect to be tied to the militants. Authorities routinely investigate such allegations, but rarely prosecute those involved in the deaths.
More than 68,000 people, most of them civilians, have died in the conflict. Kashmir is split between India and Pakistan and both claim the territory in entirety.