The brief gun battle took place on the outskirts of Srinagar, in which a third rebel fighter was captured alive, Indian paramilitary official says.
Two suspected rebels and an Indian paramilitary soldier were killed in brief fighting in disputed Kashmir on Wednesday, officials said. Indian forces detained a suspected rebel after the fighting.
Paramilitary officer Pankaj Singh said three rebels arrived on a motorbike and fired at a patrol on the outskirts of Kashmir's main city of Srinagar.
Singh said the soldiers gunned down two of the rebels. The third rebel tried to escape and was caught after a chase, he said.
The officer said soldiers recovered a pistol and a grenade from the site of the shootout.
There was no independent confirmation of the incident.
India and Pakistan each claim the divided Himalayan territory of Kashmir in its entirety.
India accuses Pakistan of arming and training the rebels, a charge denied by Islamabad. Pakistan says it only offers political and moral support to Kashmiris fighting against Indian control since 1989.
Most Kashmiris support the rebels' demand that the territory be united, either under Pakistani rule or as an independent country, while also participating in civilian street protests against Indian control.
About 100,000 people have been killed in the uprising and the ensuing Indian crackdown.
In August, India unilaterally stripped the region's partial autonomy amid stringent lockdown flaring more tensions in the volatile region.