New Delhi accused Islamabad of breaching the 14-month ceasefire when mortar bombs exploded in India-held Kashmir on Tuesday night but said it would exercise restraint.

"Both sides have agreed that nothing should be done to heighten tension," Mukherjee told reporters.

"Both sides are taking up measures to maintain the spirit of confidence-building," he said.

In Islamabad a military statement said Pakistani and Indian military commanders spoke by phone Thursday for a second time in as many days.

The commanders on Thursday "discussed the environment created by unfounded Indian allegation of mortar firing from Pakistan side," it said.

"Both sides agreed that such matters should be resolved at local level through flag meetings as has been happening in the past," it said.

The Pakistan army has denied firing the mortars into the Poonch sector, some 245 kilometers (150 miles) northwest of Jammu, winter capital of Muslim majority Indian Kashmir.

On Thursday, Pakistan reiterated its stance that no weapons were fired from its side and said it would be "pertinent if the Indian authorities investigated as to what happened in an area which is under their occupation."

Pakistan was referring to Indian Kashmir which has been racked since 1989 by an Islamic revolt against New Delhi's rule.

In violence Thursday, suspected Muslim rebels killed four people while troops shot dead five rebels in separate gunbattles, police said.

India and Pakistan launched a ceasefire on November 25, 2003, as part of a tentative peace process.

A "composite dialogue" process has continued for a year covering a host of confidence-building measures and disputes, including the core problem of Kashmir, where tens of thousands have died in the insurgency.

India, which holds two-thirds of Kashmir, accuses Pakistan of arming rebels and helping them cross the Line of Control, the de facto border. Pakistan denies the charge and says it is doing its best to stop infiltration.

Indian Prime Minister Manmohan Singh is due to meet his Pakistani counterpart Shaukat Aziz on the sidelines of a regional summit in Dhaka on February 6-7. Indian Foreign Minister Natwar Singh is to visit Pakistan later next month.

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