Indian and Pakistani troops exchanged gunfire along the disputed Kashmir region for a second straight day yesterday as Islamabad called for a "neutral" investigation into the killings of tourists in Indian occupied Kashmir.

Pakistan said it is also willing to cooperate in unveiling the truth behind the incident and favoured peace.

New Delhi has blamed Islamabad for the killings. India has identified two of the three suspected militants as Pakistani, though Islamabad has denied any role in the attack on Tuesday that killed 25 Indian and one Nepali tourists.

"Pakistan is fully prepared to cooperate with any neutral investigators to ensure that the truth is uncovered and justice is served," said Pakistan's interior minister, Mohsin Naqvi.

"Pakistan remains committed to peace, stability and the following of international norms but will not compromise on its sovereignty," he told a press conference.

Indian Prime Minister Narendra Modi has vowed to pursue the attackers to "the ends of the earth" and said that those who planned and carried it out "will be punished beyond their imagination". Calls have also grown from Indian politicians and others for military retaliation against Pakistan.

After the attack, India and Pakistan unleashed a raft of measures against each other, with Pakistan closing its airspace to Indian airlines, and India suspending the 1960 Indus Waters Treaty that regulates water-sharing from the Indus River and its tributaries.

The two sides, who both fully claim Kashmir while partly ruling it, have also exchanged fire across their de facto border after four years of relative calm.

The Indian Army said it had responded to "unprovoked" small arms fire from multiple Pakistan Army posts that started around midnight on Friday along the 740-km (460-mile) de facto border separating the Indian and Pakistani areas of Kashmir.

"Indian troops responded appropriately with small arms," it said in a statement. "No casualties reported."

There was no immediate confirmation from Pakistan, but the two sides had confirmed gunfire between their respective forces the previous night.

Indian security forces have continued their hunt for the suspects and have demolished the Kashmir houses of at least five suspected militants, including one they believe took part in the latest attack.

Pieces of broken glass littered the site of one such house in Murram village in Pulwama district yesterday. Locals said they had not seen Ehsan Ahmed Sheikh, a suspected militant whose house got destroyed, in the past three years.

His family declined to speak with reporters.

The rising tensions have had business implications, too.

Indian airlines such as Air India and IndiGo are bracing for higher fuel costs and longer journey times as they reroute international flights.

The Indian government has asked airlines to actively communicate to passengers about re-routing and delays, while ensuring enough stocks of food, water and medical kits for extended journeys.