Soldiers and police launched an overnight operation in Peethawada area, 70 kilometres (around 45 miles) northwest of the main city of Srinagar.
Kashmir is divided between India and Pakistan by a heavily militarised Line of Control or LoC since the two countries won independence from Britain in 1947.
Both claim the Himalayan territory in its entirety.
Several groups have for decades been fighting Indian forces deployed in the disputed region, for independence or a merger of the territory with Pakistan.
The fighting has left tens of thousands dead, mostly civilians.
Violence in the territory has sharply declined during the last decade, but armed encounters between rebels and government forces occur regularly.
In February nine people including three Indian army special forces commandos were killed during a stand-off between militants and government forces that lasted three days.
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