Shells and grenades exploded in the air as panic-stricken villagers rushed to leave their homes in Khandroo village, where the high-security installation was located, and surrounding areas, witnesses said.

Police evacuated an area of nine kilometres (five miles) after the fire erupted.

Two Muslim guerrilla groups fighting New Delhi's rule in Indian Kashmir separately claimed responsibility for starting the fire, but Indian authorities said it appeared to have been an accident.

Huge plumes of smoke from the burning depot streaked the sky.

The fire "broke out inside the army's central ammunition depot," a police spokesman said in Srinagar, summer capital of Indian Kashmir, where a separatist revolt has raged for nearly two decades.

An army statement said a civilian and a soldier were killed in the fire and subsequent blasts at Khandroo, 70km south of Srinagar.

"The known casualty figures at the moment are two dead and 20 wounded," the statement said.

Police said more than 30 people were hurt, mostly firefighters, and that they had ordered people to evacuate nearby areas, fearing the blaze could spread.

The army said information provided by one of the injured soldiers suggested the fire might have been caused by highly combustible white phosphorous ammunition kept in one of the sheds.