Authorities in Assam ordered shops and businesses to close before sundown on Wednesday as security forces struggled to contain militants attacks blamed for more than 80 deaths this month.
In a further blow to the authorities' prestige, three businessmen were killed by security forces after being mistaken for rebels of the separatist United Liberation Front of Asom (ULFA).
Separately, seven people were wounded in a suspected rebel bomb attack on a tea stall.
Many streets in Guwahati, Assam's biggest city, were deserted after nearly daily grenade attacks and bomb blasts in the state over the past week.
The violence comes despite a military offensive against the separatists following the massacre of 72 migrant workers this month.
The indefinite closure of shops and businesses at sundown across the state was aimed at halting civilian casualties, but did little to inspire confidence.
"There is no guarantee of safety of lives in Assam and only God knows how long this is going to continue," said Chandrima Phukan, a mother of a five-year-old son. Like many people, she now no longer shops late or takes her children outside to parks.
India's northeast, joined to the rest of the country by a thin strip of land, is home to dozens of tribes and ethnic groups, and several major separatist rebellions.
The ULFA rebel group, formed in 1979, is fighting for independence for Assam's 26 million people. The rebels accuse New Delhi of plundering the state's mineral resources and neglecting its inhabitants.
Most Assamese are Hindu but speak the Assamese language. The ULFA has tried to bolster its sagging popularity by targeting migrants from other parts of India, whom they accuse of diluting their culture, analysts say.
Violence has risen in the oil- and tea-rich state after peace talks between the representatives of the ULFA and New Delhi failed last year. Some 20,000 people have been killed since the start of the insurgency in 1979.
Thousands of soldiers have fanned out into the jungles of Assam to hunt the rebels while others are deployed on streets throughout the state in a major show of force.
But the offensive appeared only to cause a violent backlash.
"There is total chaos in the state," said Noni Gopal Mahanta, a security analyst at the Peace and Conflict Studies Centre at Guwahati University.
"The (state) government lacks a clear policy to contain violence and the rebels are taking advantage of it."
He said security forces were finding it difficult to identify militants among the state's civilians and many officials were worried a hardened crackdown would lead to accusations of human rights violations.
Police said security forces shot dead the three businessmen after mistaking them for rebels as they tried to enter an oil installation in Geleki in Sivsagar district, about 325 km east of Guwahati.
The men supplied construction material to the oil site.
Separately, a bomb exploded at a roadside tea stall in Tinsukia town, about 600 km east of Guwahati, wounding seven people.
"Contrary to the government's assertion that it would provide security to us, it has now asked us to close down and go home in the evening," Rajesh Jain, a computer dealer in Guwahati, said.
"Which means that it has failed to provide security to its people and bowed down before the militants."