At least 12 people were wounded, eight of them police officers, in the stand-off which began when a group of militants lobbed a grenade at a security camp and then entered a hotel opposite and began firing at the base on Wednesday.

"The operation is over now (but) we are still searching the area for abandoned ammunition and explosives," Gopal Sharma, director-general of police for Jammu and Kashmir, told reporters near the site of the encounter.

Police dressed in military fatigues swarmed the area around the hotel, cordoned off since Wednesday morning.

The militant group Al-Mansurian said a three-member suicide squad attacked the camp, which lies close to a congested residential area of Srinagar, summer capital of the troubled state of Jammu and Kashmir.

The group said they had killed 11 policemen and that one of their members had escaped.

"One of our mujahid has returned to base and two were martyred in the attack. Our mujahideen killed at least 11 policemen," a caller, identifying himself as an Al-Mansurian spokesman, told newspaper offices in Srinagar.

The attack is the most serious in recent months in Srinagar, which has seen almost daily street protests over the past week after a Delhi court fixed Oct. 20 as the date for hanging Mohammed Afzal, convicted for a 2001 attack on the parliament.

Mohammed Afzal's wife has since appealed to the president for clemency.

The Himalayan region has been rocked by a separatist insurgency since 1989 in which more than 45,000 people have been killed, but violence has eased since India and Pakistan launched a peace process in 2004.

Kashmir is split between the nuclear-armed rivals but is claimed in full by both. Last month, leaders of the two nations decided to set up a joint agency to fight terrorism.