Sheikh Abdul Rehman, an independent, is the first candidate to be killed since campaigning began.
The shooting, in which three others died, took place in the Handwara constituency north of Srinagar. The Jamiat-ul-Mujahideen group says it carried out the attack.
Earlier, police detained four senior Kashmiri separatist leaders, who are refusing to take part in the poll.
Abdul Gani Bhat, Maulvi Mohammad Abbas Ansari, Sajjad Lone and Shabir Shah were placed under house arrest in the capital, Srinagar.
Separatist militants have called for a boycott of the state elections which are due to begin on 16 September.
At least five political activists have been killed since election campaigning began last month.
Violence
On Friday, the authorities said militants fired at and injured four activists of the Janata Dal party at Kandhi in Kupwara constituency.
A day earlier, unknown gunmen shot dead a senior activist of the People's Democratic Party near Srinagar.
The PDP candidate narrowly escaped with his life.
Elsewhere in the disputed territory, troops said they had killed five Muslim rebels and two unarmed men in Kupwara district.
A spokesman said three more rebels had been killed in the Keran sector of the same district late on Wednesday.
In another incident, Indian officials say border guards killed two unarmed infilitrators in southern Jammu region.
The detentions in the state capital came hours before Mr Bhat, who heads the main separatist alliance, was to leave for peace talks in Delhi. He was to meet former Indian government minister Ram Jethmalani who has been trying to persuade the separatists to take part in forthcoming elections in Indian-administered Kashmir.
Talks
Shabir Shah, who was also detained, had met Mr Jethmalani last week but said he would not contest the elections.
He told the BBC on Friday that he did not know why he had been placed under house arrest.
Two of the detained leaders were due to address anti-election rallies later on Friday.
"This [detention] is to make sure they don't move out for anti-poll campaigning in Kashmir," the AFP news agency quoted a police officer as saying.
India hopes a successful election will lend credibility to its position on Kashmir - but most separatists have said they will boycott it and militant groups have warned people not to take part.
Most separatists view the vote as an attempt by India to justify its rule in the disputed territory.
Ram Jethmalani heads the Kashmir Committee which has been holding talks with various separatist leaders.
It was set up last month as a fresh initiative to find a peaceful resolution to a dispute which has seen nuclear rivals India and Pakistan mobilise a million troops.