Pakistani troops fired across the line of control that divides Indian- and Pakistani-administered Kashmir, reported dpa.
"Our troops are maintaining restraint. We have asked the Pakistani troops to stop firing so that the situation does not escalate," defence spokesman AK Mathur said.
The firing had ceased and the director generals of military operations of the two countries had spoken to each other on a hotline, NDTV television network reported.
Fierce clashes between Indian and Pakistani troops along the border on Monday and Tuesday left one Indian soldier dead.
The fighting that lasted more than 16 hours stopped Tuesday, and a meeting was held between Indian and Pakistani troops.
Indian officials claimed Pakistani soldiers had entered Indian-administered Kashmir to protest the construction of an Indian bunker near the line of control.
A Pakistani Army spokesman denied that its troops had crossed the de-facto border and said they were trying to stop Indian soldiers from establishing "a forward post in the area on the Pakistani side."
Indian media reported that four Pakistani soldiers were also killed in retaliatory firing in the area 100 kilometres north of Srinagar, but those reports were categorically denied by a Pakistan Army spokesman, Major General Athar Abbas.
Indian officials alleged the fighting was the most serious violation of the ceasefire with Pakistan announced in November 2003.
Indian Defence Minister AK Anthony on Tuesday urged Pakistan to respect the ceasefire and said India was exercising restraint.
Soon after implementing the ceasefire, India and Pakistan resumed a peace process in 2004 to resolve eight issues dividing them, including the dispute over the Himalayan region of Kashmir.
Kashmir has been at the root of tense relations between the South Asian neighbours since their independence from British rule in 1947. The two countries have fought two of their three wars over Kashmir. dpa is su im ls ch