The Indian army shot dead Ghulam Rasool Dar alias Gazi Naseer-u-din, the top commander of the region's dominant militant group Hizbul Mujahedin during an encounter at Zainakote, on the outskirts of summer capital Srinagar, an army spokesman said.

Dar was Hizbul's topmost commander in Kashmir after Pakistan-based supremo Syed Salahudin.

He was active in the region for the last 14 years, and was heading the security force list of "most wanted" militants.

"Dar was killed along with Hizbul's financial chief Fayaz Ahmed during a 30-minute long encounter," the spokesman said.

He had been evading security forces in the past, and is regarded as closer to Salahudin.

The spokesman said the exchange of fire was continuing.

Earlier on Thursday another Muslim militant, Abbas Malik alias Abbas Rahi, died in a shootout with security forces on the outskirts of Srinagar, the summer capital of Indian Kashmir, Tirtha Acharya, spokesman for India's Border Security Force, told AFP.

But Acharya said the body was only identified later as that of the pro-Pakistan group's second-in-command in Muslim-majority Kashmir valley.

Local media reports said security forces had arrested Malik and killed him in a "fake encounter." No comment was immediately available from Hizbul, which wants Indian Kashmir to be folded into nuclear rival Pakistan.

The latest violence came as the moderate wing of the All Parties Hurriyat Conference separatist group readied for unprecedented peace talks next week with New Delhi about ending the separatist revolt racking the Muslim-majority region since 1989 that has left tens of thousands dead.

Rebels and hardline separatists are opposed to the talks.

Police said they found an AK-56 rifle, a mobile phone and 1.2 million rupees (26,400 dollars) at the scene of the clash with Malik.

In other violence, police said suspected militants shot dead two Muslims in two villages overnight near the town of Bandipora, 60 kilometers (37 miles) north of Srinagar. The motive for the killings were not known, police said.

Some dozen rebel groups are battling Indian rule in the Himalayan territory divided mainly between India and Pakistan and claimed in full by both.