India and Pakistan traded blame yesterday after their troops fought a 16-hour gun battle across a disputed border in Kashmir in what Delhi described as the most serious violation to date of a 2003 ceasefire agreement.

It was the latest in a series of violent incidents that threaten to undermine a four-year peace process between the neighbours, which have fought three wars since independence in 1947. Both countries tested nuclear weapons in 1998.

The Indian Army said that the battle began when between ten and twelve Pakistani troops crossed the line of control (LOC) between the two sides and shot dead an Indian soldier in the mountains north of Srinagar, Kashmir's capital.

Lieutenant-Colonel Anil Mathur, of the Indian Army, said: “They had crossed the LOC and when our patrol party set out to talk to them, they opened fire, killing one of our soldiers. We retaliated. This is the biggest violation of the ceasefire in the last five years.” Four Pakistani soldiers were killed, he added.

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Pakistan's Army denied suffering any casualties and said that the gun battle started when Indian soldiers tried to establish a “forward post” on Pakistan's side of the line of control.

“No Pakistani soldier had crossed the LOC,” it said in a statement.

“Indian soldiers wanted to establish a forward post in the area on the Pakistani side of the LOC, which was objected to by our soldiers. On Pakistan's objection, Indian troops opened indiscriminate and unprovoked fire. The Indian fire was immediately responded to.”

Pakistan said that it had “material evidence” in the form of weapons left behind by the fleeing Indian soldiers.The fighting - which involved only small arms - continued until about noon local time yesterday, when both sides agreed to a “flag meeting” between officers at the line of control.

Experts say that they expect further clashes as hardline elements within Pakistan's Armed Forces appear to be exploiting the weakness of the country's new civilian Government.

The battle took place less than a month after India accused Pakistan's intelligence agency of masterminding a suicide bomb attack on the Indian Embassy in Kabul, the Afghan capital. Last week India declared that the peace process with Pakistan was under stress after the Kabul attack and recent incidents in Kashmir. Indian officials also now suspect that Pakistan-based militants were involved in two days of bombings that killed at least 51 people in the cities of Ahmedabad and Bangalore last week. Police discovered another ten unexploded bombs yesterday in the city of Surat, one of the world's biggest diamond-polishing centres, which is also in Gujarat.

A group called the Indian Mujahidin has claimed responsibility for the Ahmedabad attacks, but many Indian security experts and officials suspect that it is a front for Pakistan-based militants.

Nearly a dozen Islamic militant groups have been fighting against Indian rule in Kashmir since 1989 and more than 68,000 people, mostly civilians, have been killed in the conflict.

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