India said three of its soldiers were killed Tuesday along the Line of Control (LoC) in the Machhal sector in held Kashmir.
The body of one of the dead soldiers had been "mutilated", the army said in a tweet, threatening "retribution".
The Hindustan Times reported 'militants' were behind the attack.
There was no immediate comment from the Pakistan Army, which last week accused India of killing seven of its soldiers in cross-border fire in Kashmir.
FO terms Indian claims 'false and baseless'
The Foreign Office rejected Indian reports that the body of an Indian soldier was mutilated on the LoC.
"Pakistan strongly rejects the false and baseless media reports regarding the alleged mutilation of an Indian solider on the LoC.,” said Nafees Zakaria, spokesperson for the Foreign Office.
The FO statement further added that the “reports are a fabrication and a blatant attempt to malign Pakistan”..
“The Pakistan Army, with its professional approach, is not involved in any such unethical and non-professional activity and neither does it support any such action,” said the Foreign Office statement.
The fact is that India is constantly violating the 2003 Ceasefire Understanding, targeting civilians and trying to divert international attention from its atrocities in Indian-occupied Jammu and Kashmir, said Zakaria.
Read more: In the line of fire: Pakistani soldiers who were killed last night
Tensions between Pakistan and India have been running high following an alleged 'surgical strike', unrest in Kashmir and the Uri army base attack in September.
Since then there have been repeated outbreaks of cross-border firing in Kashmir, with both sides reporting deaths and injuries including of civilians.
Indian Prime Minister Narendra Modi stepped up a drive to isolate Pakistan diplomatically after the Uri army base attack in which 19 Indian soldiers were killed. Hours after the attack occurred, Indian Home Minister Rajnath Singh termed Pakistan a 'terrorist state' and accused Pakistan of involvement.
The Uri attack occurred days before Prime Minister Nawaz Sharif was set to address the United Nations General Assembly regarding Indian human rights violations in held Kashmir.
Following the attack, India claimed it had conducted a cross-border 'surgical strike' against 'launch pads of terror' in Azad Jammu and Kashmir — a claim Pakistan has strongly rejected.
Pakistan maintains that India is attempting to divert the world's attention away from atrocities committed by government forces in India-held Kashmir.
Pakistan and India have, most recently, locked horns over Kashmir since Indian forces stepped up a crackdown against protesters after Hizbul Mujahideen commander Burhan Wani was killed by government forces in July.
