Kashmir has been the source of two India-Pakistan wars
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India says it is to protest to Pakistan after two of its border guards were injured in a shooting incident near the international border in Kashmir.
Indian security officials said their patrols were shot at from across the border, possibly by Pakistani troops.
Pakistan angrily denied its soldiers had breached a ceasefire, saying Indian troops opened fire first.
The truce came into force in 2003 ahead of peace moves. The rivals have fought three wars, two of them over Kashmir.
'Ludicrous'
An Indian border security official said gunfire came first from the Pakistani side, although he said it was not clear whether the shots were fired by soldiers or militants.
Indian officials say Islamic militants fighting Indian rule in Kashmir continue to sneak across from the Pakistani side of the divided region, despite the three-year-old ceasefire.
Pakistan denies this.
India said its troops returned fire in the incident, but two of its soldiers were wounded in the exchange.
A Pakistan army statement called the allegations "fabricated and ludicrous".
It said Pakistani border guards did not return fire.
Since the 2003 ceasefire, India and Pakistan have been holding regular peace talks.
But they have made little progress over the Kashmir dispute.
The two countries have accused each other of violating the ceasefire on a couple of occasions since it came into force, but the peace process has been unaffected.
The BBC's Barbara Plett in Islamabad says many diplomats and analysts there believe that President Pervez Musharraf has taken significant steps to stop the jihadis.
But they say it is difficult for him to completely dismantle the militant infrastructure without a resolution of the Kashmir dispute.