The land transfer plans caused anger on both sides of the religious divide
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The chief minister of Indian-administered Kashmir, Ghulam Nabi Azad, has resigned following the withdrawal of a key coalition partner.
The move follows angry protests by Muslims and Hindus over a proposed transfer of land to a Hindu shrine.
At least five people died and hundreds were wounded in the unrest.
The region's governor has accepted Mr Azad's resignation, but asked him and his ministers to stay on until alternative arrangements can be made.
Elections are due in Indian-administered Kashmir, the country's only Muslim majority state, in October.
Violent protests
Mr Azad's administration was reduced to a minority 10 days ago after the People's Democratic Party (PDP) withdrew from the coalition following Muslim protests over the land transfer plans. It had opposed the plans.
He announced his decision to quit ahead of a vote of confidence in the state assembly.
The Kashmir valley has witnessed violent protests in recent weeks following the government's decision to grant 40 hectares of forest land to the Amarnath Shrine Board.
Muslims argued the move was aimed at altering the demographic balance in the area.
The state government said the Amarnath Shrine Board needed the land to erect huts and toilets for visiting pilgrims.
But it rescinded its decision last Monday - which led to unrest among Hindus in the state's Hindu-majority region of Jammu. Protests are still going on.
Demonstrations also spread to other parts of India, with hard-line Hindu groups accusing the Kashmir government of giving in to the demands of separatists.
Last Thursday four people died in Indore, in the central Indian state of Madhya Pradesh, when police opened fire during clashes between Hindus and Muslims over the issue, officials say.
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