Four policemen and a militant were killed on Sunday after a gun battle in Srinagar, police said.
The encounter, the first in past eight months in Srinagar, broke out after police raided a militant hideout. "Militants hiding in a house fired indiscriminately. We have lost four policemen," Srinagar police chief Syed Ahfadul Mujtaba said.
He said a top militant of Pakistan-based Lashkar-e-Taiba militant group was also killed. The violence comes days after rebels exploded a powerful bomb in the heart of Srinagar, killing one person and wounding about two dozen.
Rebel violence has fallen across Kashmir after India and Pakistan, who claim the region in full but rule in parts, started a slow-moving peace process in 2004, officials say.
But people are still killed in daily shootouts and occasional bomb attacks.
On Saturday, suspected separatist guerrillas dragged out a village headman from his home and killed him by slitting his throat in north Kashmir, police said.
The Indian army said this month it expected militant incursions from Pakistani Kashmir to increase once the snow starts melting along the mountainous border region as summer approaches.
More than 42,000 people have been killed in Jammu and Kashmir, since a revolt against New Delhi broke out in 1989.