Four people have died in Indian-administered Kashmir after a deadly raid by government forces on in the disputed region's main city, police and families of the victims said on Tuesday.

The region's head of police, Vijay Kumar, said that alleged militants fired indiscriminately at police and soldiers when they cordoned off a business centre on Monday night in Srinagar, following a tip that they were hiding there.

The ensuing clash led to the deaths of two civilians and two suspected fighters, Kumar told reporters on Tuesday. However, families of the slain civilians said Indian troops used them as human shields during the deadly standoff.

Police said the civilians were killed in the crossfire and were identified as the shopping centre's owner, Mohammad Altaf Bhat, and a trader, Mudassir Ahmed.

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The police chief said Ahmed, a dental surgeon and real estate dealer who had rented an office space in the building, was an overground worker, a term Indian authorities use for rebel sympathisers and their civilian supporters.

Eyewitnesses and family members of the two killed civilians rejected the police account, saying the shopping centre owner and trader were picked up by troops after they had cordoned off the area and taken them inside the building in the presence of dozens of civilians.

A shopkeeper, Nazir Ahmed, said government forces assembled dozens of the area's shopkeepers and others in a showroom and snatched cellphones from them.

He said later troops asked the shopping centre's owner, Bhat, to accompany them inside the building, and the trader Ahmed also went with them.

Abdul Majid, Bhat's elder brother, said his brother was used as a human shield and killed in cold blood.

He was speaking from the family home where relatives were waiting for the return of the body to allow for a traditional burial. "He was innocent,” the brother added.