India has accused Pakistan of supporting "cross-border terrorism" after gunmen carried out the worst attack on civilians in contested Muslim-majority Kashmir for a quarter of a century.

Islamabad has denied any involvement, calling attempts to link Pakistan to the attack "frivolous" and vowed to respond to any Indian action.

Indian security forces have launched a giant manhunt for those responsible for killing 26 men at a tourist hotspot in Pahalgam on April 22, with police naming two Pakistani nationals among the fugitive gunmen.

The Indian army said on Sunday there had been "unprovoked" firing of small arms "initiated by Pakistan" along the Line of Control (LOC) that separates the two countries.

"(Our) own troops responded effectively with appropriate small arms fire," it added.

Pakistan has not yet confirmed the latest exchange of fire.

In the aftermath of the attack, New Delhi suspended a water-sharing treaty, announced the closure of the main land border crossing with Pakistan, downgraded diplomatic ties, and withdrew visas for Pakistanis.

In response, Islamabad has ordered the expulsion of Indian diplomats and military advisers, cancelling visas for Indian nationals -- with the exception of Sikh pilgrims -- and closing the main border crossing from its side.

The United Nations has urged the arch-rivals to show "maximum restraint" so that issues can be "resolved peacefully through meaningful mutual engagement".