At least seven people, including three civilians, were killed in fighting in Indian-held Kashmir on Wednesday that sparked angry retaliatory protests and violent street clashes across the restive Himalayan region.

Kashmir - divided between India and Pakistan but claimed in its entirety by both - has witnessed a surge in violence with more than 100 people killed since the start of the year.

In the latest shootout, Indian forces killed three gunmen and a civilian allegedly being used as a human shield in Kulgam district in southern Kashmir, police said.

Hundreds of civilians marched on the village, chanting anti-India slogans and throwing stones at government forces who responded with live rounds, pellets and tear gas.

"Two civilians died when they came close to the encounter site," local police chief Shesh Paul Vaid told AFP.

A soldier who was wounded during the fighting died later in a military hospital, Vaid said.

The violence comes shortly after 20 people - including four civilians - were killed on a single day earlier this month.

Separatist rebels in Indian Kashmir have been fighting security forces for decades for independence or for a merger with Pakistan. Tens of thousands, mostly civilians, have died.

On Wednesday, students protested against Indian rule at Srinagar's largest university, while shops were closed in the city.

Tensions were particularly high before Wednesday's violence: two police officers were implicated this week in the rape and murder of an eight-year-old girl whose body was found in January.

Last year was the deadliest of this decade in the region, with more than 200 alleged militants killed in a counter-insurgency offensive dubbed "Operation All Out".