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The test of the indigenously built Prithvi (earth) missile took place at the Chandipur-on-Sea test site in the eastern state of Orissa, the source said.
The missile has a range of 150-300 kilometres (93 to 186 miles) and can carry conventional and nuclear warheads. A variant of it has already been inducted into the Indian army.
Nuclear-capable India and Pakistan, which have fought three wars, two over the disputed Himalayan territory of Kashmir, routinely carry out missile tests.
A foreign ministry official in New Delhi said Islamabad had been informed ahead of time about the test of the Prithvi, which uses both solid and liquid propellents.
The test came three weeks after India and Pakistan agreed to resume peace talks after nearly going to war again other over Kashmir in 2002.
India says it requires missiles as part of building up a minimum credible nuclear deterrent.
The 8.5-metre (28-foot) Prithvi missile can be tipped with incendiary and fragmentary munitions or can carry a sub-kiloton nuclear warhead for use against troops or armoured formations.
It can carry warheads weighing up to 1,000 kilomgrammes.
The Prithvi has three separate versions for the army, navy and air force. Prithvi's navy and air force versions have an extended range of 250 kilometres.
It was the 23rd test of the missile since the 1980s when India launched its indigenous Integrated Guided Missile Development Programme.
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