Tensions in the disputed region claimed by both India and Pakistan flared after a militant commander was killed in July.
Militants attacked an army base in Indian-administered Kashmir on Sunday morning and killed 17 soldiers, army officials said.
The pre-dawn attack in Kashmir's northern region on the de-facto border with Pakistan is the most deadly incident in the disputed region in years.
Kashmir is claimed by both India and Pakistan. It has caused two wars between the neighbours and has been a point of contention for more than 60 years. Pakistan said it was not involved in Sunday's attack.
Four ‘fiyadeen" or commando style gunmen were confirmed killed after entering the base in Uri, near the Line of Control with Pakistan, an Indian army spokesman said.
India's Prime Minister Narendra Modi condemned what he called a "cowardly terror attack'.
"I assure the nation that those behind this despicable attack will not go unpunished," he said.
India's Home Minister Rajnath Singh chaired a crisis meeting in New Delhi and cancelled trips to Russia and the United States.
"It is clearly a case of cross-border terror attack. We don't know which militant group is involved," a senior Home Ministry official said.
I have given instructions to the Home Secretary and other senior officers in MHA to closely monitor the situation in Jammu and Kashmir— Rajnath Singh (@rajnathsingh) September 18, 2016
Pakistan rejected allegations that it was involved.
"India immediately puts blame on Pakistan without doing any investigation. We reject this," foreign ministry spokesman Nafees Zakaria said.
The Indian army evacuated the soldiers by helicopter, after an hours-long gunfight. The defence ministry in New Delhi said 35 soldiers were injured.
The raid comes amid heightened tension in India's only Muslim-majority region which has been gripped by more than two months of protests after a field commander from the Hizbul Mujahideen group was killed in July.
At least 78 civilians have been killed and thousands injured in street clashes with the Indian security forces in subsequent clashes.
Human rights groups criticised India for using excessive force, including shotguns that fire pellets which have blinded people.
The pellet-riddled body of 11-year-old Nasir Shafi, was found in an orchard on Friday. Shafi had disappeared during clashes with security forces.
Thousands of people defied an Indian imposed curfew on Saturday to bury Shafi. Authorities have banned large groups from congregating.
Internet access in the troubled region has been limited and some phone lines shut down.