An official says a policeman and a militant have been killed in a gunbattle in Indian-controlled Kashmir, as shops and businesses remained closed in the disputed region to protest the killing of two people by the army.

Paramilitary spokesman Kishore Prasad said soldiers and police cordoned off Mandoora village in southern Kashmir on Monday, leading to an exchange of gunfire with rebels trapped in a building. Two soldiers were wounded in the gunbattle.

In Kashmir's main city of Srinagar, schools and colleges were shut and shopkeepers closed their stores for a strike called by separatists to protest the killing of the two by the army on Sunday.

Anti-India feelings run deep in Indian Kashmir where nearly a dozen rebel groups have been fighting against Indian rule since 1989.