Eight people were killed in Indian-administered Kashmir Sunday after a gunbattle broke out between suspected rebels and the Indian army, officials said.

The alleged militants were hiding in a south Kashmir village when the military and police surrounded it and a firefight broke out.

"Four terrorists were killed and four weapons were recovered from the encounter site," army spokesman in Srinagar, Col Manish told AFP.

"Two soldiers were also martyred and three injured during the encounter."

Two civilians, including the son of the owner of the house in which the militants were hiding, also died, police told AFP.

Clashes occurred between government forces and protesters in the aftermath of the battle and at least 25 people were injured including 12 with bullet injuries, authorities said.

Three militants managed to escape, and a heavy police contingent has been deployed in the area "to maintain law and order", police added.

Kashmir has been divided between India and Pakistan since they won independence from Britain in 1947. Both claim the Himalayan territory in its entirety.

Several rebel groups have for decades fought tens of thousands of Indian troops deployed in the region, demanding independence or a merger of the territory with Pakistan.

The fighting has left tens of thousands, mostly civilians, dead.