Indian troops laid siege to a village in northwestern Handwara area of the scenic valley early Thursday on a tip that militants were hiding.
As counterinsurgency police and soldiers launched a search operation, a gunfight erupted in which Manan Wani, 26, and his colleague were killed in a fierce gunfight that lasted more than 10 hours.
"Wani's family have identified the body and now legal formalities are underway," one police officer said, Presstv Reported.
Anti-India protests and clashes erupted as the fighting raged, with hundreds of residents trying to march to the site. New Delhi government forces fired warning shots, shotgun pellets and tear gas at the stone-throwing protesters, injuring at least four people.
Wani became a folk hero in the troubled territory after giving up geology research at an Indian university to become a militant. Wani quit a PhD program at Aligarh University in January to join Hizbul Mujahideen, the biggest group fighting for Kashmir's merger with Pakistan.
He rose to prominence after circulating two open letters in the Indian media explaining why he took up arms.
"We are soldiers we don´t fight to die, but to win, we don´t feel dignity in death but we do feel dignity in fighting occupation, its military might, its oppression, its tyranny, its collaborators and most of all its ego," Wani wrote in his first letter in July.
The incident could spark more unrest in a region that has witnessed renewed militant attacks and public resistance against the Indian rule in recent years.
Top separatist leaders opposed to India's rule in Kashmir called for a general strike on Friday over Wani's killing.
"Deeply pained that we lost a budding intellectual and writer like him, fighting for the of cause of self-determination," Mirwaiz Umar Farooq, one of the three top separatist leaders of the Joint Resistance Leadership (JRL), said in a tweet.
The JRL called for a complete shutdown "to pay homage" to Wani.
The killing of another popular militant leader Burhan Wani by security forces in July 2016 sparked fierce protests in the Indian Kashmir that left more than 100 dead.
This year at least 180 fighters, 60 civilians and 74 security forces have been killed in dozens of clashes.
Since 1989, Hizbul Mujahideen and other groups have been fighting hundreds of thousands of Indian soldiers deployed to the Muslim-majority region.
Kashmir has been divided between India and Pakistan but is claimed in full by both countries since they partitioned and gained independence from Britain in 1947.
The two countries have fought three wars over the disputed territory. Despite a ceasefire agreement that was reached in November 2003, sporadic skirmishes continue in Kashmir.
New Delhi accuses Islamabad of supporting pro-independence fighters, an allegation rejected by the Pakistani government. Islamabad, in turn, is critical of India’s heavy military deployment to Kashmir and its crackdown against the region’s Muslim population.
Armed battles between Indian forces and militants over the years have killed nearly 70,000 people, mostly civilians.