Manmohan Singh (far right) flags off the first train at Nowgam
India's prime minister has inaugurated Kashmir's first train service, amid heavy security and following protests that left two people dead.
Manmohan Singh flagged off the first train after a low-key ceremony at Nowgam station.
On Friday, he inaugurated a dam built in the disputed region despite protests from Pakistan.
At least 75 people were also hurt in protests on Friday and separatists have called a two-day strike.
Some 30 people have been killed in clashes with security forces in Indian-administered Kashmir since August amid growing anti-India protests.
Kashmir has been a flashpoint between India and Pakistan for more than 50 years and the scene of two of their three wars. A Muslim separatist insurgency has been waged since 1989.
'Dream come true'
Mr Singh was joined at Nowgam by the Congress party's president, Sonia Gandhi, Railway Minister Laloo Prasad and about 100 leaders and former legislators belonging to various pro-India political parties.
Mr Singh said: "Our intention is that the future of Kashmir should be socially, economically and politically bright."
Many Kashmiris also welcomed the train link.
One villager from Baramulla, Mushtaq Ahmed, told AFP news agency: "It is a dream come true for us. I have never seen a train in my life. I will try to be the first from my village to board one."
The inaugural train, decorated with flowers, carried school children.
The line will link the town of Rajwansher in the north with Anantnag in the south, a distance of 72km (44 miles).
It will be extended next year to 117km (73 miles) to Baramullah and Qazigund. The eventual plan is to extend the link to connect with India's vast rail network, but that could take years.
Mr Singh's visit has seen thousands of police and federal paramilitary soldiers patrolling the streets of Indian-administered Kashmir's summer capital, Srinagar.
Shops, schools and offices were closed as part of the separatist-called strike.
The Rajwansher-Anantnag link was to be inaugurated in the summer, but was postponed following anti-India protests.
After some years of relative calm in the valley, tensions were sparked by a plan to grant land to a board that oversees the running of an important Hindu shrine.
On Friday, protesters also burned an effigy of Pakistani President Asif Zardari who was quoted last week by the Wall Street Journal as calling militants in Kashmir "terrorists".
Pakistan has strongly opposed the hydro-electric dam project at Baglihar, saying it will deprive its farmers of irrigation.
Islamabad argued that the dam violated the World Bank-brokered 1960 Indus Water treaty which divided the rights of water from six rivers between India and Pakistan.
In February 2007, the World Bank overruled most of Pakistan's objections.
At the same time, it told India to lower the height of the dam by 1.5m (five feet).