Four people have died in Indian-administered Kashmir during a siege in the summer capital, Srinagar.
Three bodies were brought out of the hotel
It ended when paramilitary police stormed a hotel after a 12-hour gun-battle with suspected militants.
The violence started on the first day of a visit to the city by the Indian Prime Minister, Atal Behari Vajpayee.
A BBC correspondent in Srinagar says Mr Vajpayee's visit was intended to show the outside world that the situation in Kashmir was improving.
A spokesman for India's Border Security Force (BSF) says paramilitary personnel stormed the Greenway hotel on Thursday morning.
At least one militant had fled into the hotel, taking hostages, after earlier attacking the city's telephone exchange.
The hotel was gutted by a fire which the spokesman said broke out after a grenade lobbed from inside the hotel hit a gas cylinder.
Three bodies have been brought out of the building.
Police say a former commander of the pro-India Ikhwan militia group and leader of the opposition National Conference, Javed Shah, and his security guard were among those killed.
Javed Shah published a newspaper from the building.
One Indian paramilitary was killed, while half a dozen police and paramilitary, including a senior officer of the BSF, were injured in the clash.
The fighing started not long after Indian Prime Minister, Atal Behari Vajpayee, began a visit to Srinagar. He is holding talks with regional ministers in the city.
The violence at the central telephone exchange erupted several kilometres from the Sheri Kashmir International Convention Complex where Mr Vajpayee's meeting is taking place.
A little-known guerrilla group called Al-Malsuran claimed responsibility for the attack.
The Indian paramilitaries opened fire, causing panic among pedestrians, our correspondent reports.
Earlier on Wednesday, an explosion in the city's Batmaloo district seriously injured a federal soldier, correspondents say.
Security was tightened in the city for the talks between Mr Vajpayee, the Deputy Prime Minister, LK Advani, and state chief ministers on the division of powers between the federal government and the provinces.
This is the first time that a meeting of the Inter-State Council, with ministers from the country's 28 states, has met outside the capital, Delhi.
The BBC's Frances Harrison in Delhi said the venue was shifted to Kashmir in an attempt to show the outside world that the situation there is improving.
It is Mr Vajpayee's second visit to Kashmir in five months.
A general strike called by separatists closed shops and businesses.
The separatists say the visit is intended to hoodwink the international community, and have called on Kashmiris to express their resentment against the Indian Government.
Most people stayed indoors to avoid questioning by the Indian paramilitaries.
The security forces have been on heightened alert since Monday's bomb explosions in the Indian city of Mumbai (Bombay), which left about 50 people dead.
More than 38,000 people have died in Kashmir since the revolt against
Indian rule took off in the Muslim-majority region in late