The six died during a heavy exchange of fire in the border village of Marsari, 130 kilometers (80 miles) northwest of the main city of Srinagar, deputy inspector general of police for the frontier area, Gharib Das said.
The 16-hour gun battle began Friday when government forces zeroed in on an abandoned house after receiving information about the presence of suspected rebels.
"Two soldiers were martyred and four terrorists killed in the operation," Defense Spokesman S. D. Goswami told AFP.
Two other soldiers were injured and have been taken to a military hospital, according to police.
Kashmir has been divided between India and Pakistan by a heavily militarized Line of Control since the end of British colonial rule in 1947.
Both countries administer parts of the restive Himalayan territory separately but claim it in full.
Since 1989 several rebel groups have been fighting an estimated half a million Indian forces deployed in the region, for independence or a merger of the territory with Pakistan.
Overall violence in the disputed territory has declined sharply during the last decade, but armed encounters between rebels and government forces occur regularly.