Srinagar, Kashmir - Indian Prime Minister Manmohan Singh on Saturday inaugurated the first-ever train service in the troubled Jammu and Kashmir state as the region was tense amid a shutdown and protests called by separatist leaders that saw two people killed and 75 injured.

Singh, accompanied by ruling United Progressive Alliance chairwoman Sonia Gandhi and other senior officials, flagged off the flower-bedecked train from the Nowgam railway station near the state's summer capital Srinagar.

The train, launched 10 years after the project was commissioned, carried schoolchildren.

Initially the train will run from northern Budgam district south to Anantnag, covering a distance of 66 kilometres.

In later phases, the project which is estimated to cost 113 billion rupees (2.3 billion dollars) will cover 116 kilometres and connect Kashmir to the rest of India.

Officials said the project took nearly a decade to build as it had to face the challenges of engineering in the tough mountainous terrain as well as separatist violence.

"The new train network will usher in peace and prosperity in Kashmir," Indian Railway Minister Lalu Prasad told reporters.

Meanwhile, there was a complete shutdown in Srinagar as major markets, educational institutions and banks remained closed in response to the separatists' strike call.

Protestors took to the streets in Srinagar and Baramulla town on Friday soon after Singh inaugurated a 450-megawatt hydro-electric power project in the state.

"By late Friday evening two people were killed and 75 people including 35 security personnel were injured when protestors clashed with security forces," a local police officer said.

"The two protestors were killed in Srinagar when police fired to disperse angry mobs," he added.

Singh, who was on a two-day visit to the region, renewed the Indian federal government's offer for talks aimed at ending the separatist violence.

"The government will welcome dialogue with all sections of people," Singh said at a press conference on Friday.

"This also includes those who have so far opted to stay out of the political process," he said, referring to the separatist Hurriyat Conference.

Picturesque Kashmir is at the heart of a long conflict between nuclear-weapons-capable South Asian neighbours India and Pakistan who have fought two wars over the region since the partition of the Indian subcontinent in 1947.

Both countries administer parts of Kashmir separately but claim the region in its entirety.

India alleges militants demanding a separate homeland for Kashmir are trained in Pakistan and routinely infiltrate India-administered Kashmir to launch attacks in the state.

The Indian army Saturday claimed they had killed a militant near the Line of Control, a de-facto border, and foiled an infiltration bid from Pakistan-administered Kashmir late Friday.

Militant violence, which reached its peak in the state in 1989, has claimed the lives of more than 40,000 people, including civilians, militants and security forces. (dpa)