As the flash point, decades-old dispute between the two nuclear-armed rivals over Kashmir province resurfaced, India strongly protested to Pakistan, saying its army had killed the Indian soldiers after crossing the Kashmiri border, known as the Line of Control.
The Indian Foreign Affairs Ministry summoned Pakistani Ambassador Salman Bashir to lodge India's "strong protest" over the incident Tuesday, the ministry said on its website.
"Regular Pakistan troops crossed the Line of Control at Mendhar sector and engaged the Indian troops who were patrolling this sector," the ministry said.
"Two Indian soldiers were killed in the attack and their bodies subjected to barbaric and inhuman mutilation. The government of Pakistan was asked to immediately investigate these actions that are in contravention of all norms of international conduct and ensure that these do not recur."
The ministry said Indian Foreign Secretary Ranjan Mathai reminded that officials from the two countries had only met last December in New Delhi to discuss confidence-building measures "wherein maintaining the sanctity of the LoC, one of the most important CBMs between the two countries, was emphasized."
The countries have fought four wars, two of them over Kashmir, since they became independent in 1947. Bilateral relations have seesawed since then but have become critical since the two became nuclear weapons countries.
Relations plunged after the 2008 terror attacks in Mumbai by 10 gunmen from Pakistan. The assault lasted three days and left 166 people, including foreigners, dead and more than 200 wounded.
Since then the countries have been trying to improve ties through talks, back-channel diplomacy and even through cricket matches but the Kashmir issue has refused to die down.
The latest incidents, which could deal a severe blow to the peace talks, come just days after the Pakistani cricket team concluded a tour of India.
The Pakistani army Wednesday rejected charges that it crossed the LoC and killed Indian soldiers, the state-run Associated Press of Pakistan reported.
Pakistan army's director general military operations, Maj. Gen. Ashfaq Nadeem, talked to his counterpart in India and Indian authorities were informed that Pakistan had "carried out ground verification and checked and found nothing of this sort happened as being alleged by India," the report said.
The report also accused Indian troops of a Sunday raid on a Pakistani post in which a Pakistani soldier was killed. India has denied that, saying its soldiers returned fire after being shot at.
On Tuesday, Indian Foreign Minister Salman Khurshid Salman told the NDTV news channel the alleged attack was "absolutely unacceptable, ghastly, and really, really terrible and extremely short-sighted by their [Pakistanis] part."
Also Wednesday, Indian Defense Minister A.K. Anthony said the Pakistani army's treatment of the two dead Indian soldiers was "inhuman" and "highly provocative."