The Indian army says it has killed a number of Islamic militants who were trying to cross into Indian Kashmir from Pakistan.
The Indian army says it laid an ambush
A senior army officer says a group of 25 militants was intercepted and as many as 15 were killed.
The rebels were crossing the Line of Control in Baramullah district in the north-western Gurez sector, 175km (110
miles) north of Srinagar, the summer capital of Indian-administered Kashmir.
The clash came hours before military attaches from more than 20 countries visited the disputed territory on a fact-finding mission.
The attaches, amongst them representatives from the US, the UK and France, were flown by helicopter over the area where the exchange of fire had taken place.
"The tour is intended to give the real picture on the
ground to the visiting attaches," one Indian officer said.
The Line of Control divides Indian and Pakistani troops in Kashmir, who have fought two wars over the territory.
A gun battle erupted late on Sunday, and lasted all night, the army says.
The Indian army set an ambush in thick forest, after an infiltration had been predicted, according to military sources.
They say there has been heavy shelling by Pakistan artillery on Indian positions for the past two weeks.
The BBC's Adam Mynott in Delhi says that is normally viewed as covering fire to allow cross-border insurgents to make their way into Indian Kashmir.
"The infiltrating militants were asked to surrender, but they instead opened fire which was effectively returned," said an Indian official quoted by the AFP news agency.
"This is one of the major infiltration bids in recent months by Pakistan-backed terrorists," army spokesman Lieutenant Colonel Mukhtar Singh told Reuters.
On Sunday, Indian army officials cited intelligence reports that some 1,600
militants were getting ready to infiltrate into Indian Kashmir, according to the Associated Press.
These militants were believed to include 20 suicide squads, the officers said.
War of words
Relations between India and Pakistan had been steadily improving over the past few months.
But sharp exchanges between Pakistan's President, General Pervez Musharraf, and the Indian Prime Minister, Atal Behari Vajpayee, at the United Nations have set back moves towards peace.
Mr Vajpayee returned to Delhi late on Sunday and said the process had received a blow.
"Despite the setback to the peace initiative, a fresh impetus needs to be given to ensure that all outstanding issues between the two countries are resolved peacefully and through dialogue," he said.