A police official said one armyman was killed and two others injured after a gunfight erupted during a search operation on Tuesday night.
The security forces fired back in a bid to capture the militants, said to be linked to the Pakistan-based Lashkar-e-Taiba (LeT).
While police and army officials maintain that the search operation was in progress, sources said the security forces withdrew following the clashes. "But he succumbed to injuries during treatment", a doctor who attended to the slain youth said, adding that at least half dozen wounded protesters were brought to different hospitals from the site of clashes.
This is the second time that four civilians have been killed by security forces near encounter sites.
The martyred soldier has been identified as Sepoy Sada Gunakara Rao. Four men were killed and at least 40 civilians injured, officials said.
Locals in Indian occupied Kashmir protesting. It was not immediately known how the deceased got injured, they said. "Among the 10 injured, eight with serious wounds were referred to Srinagar hospitals".
Schools, colleges and businesses in the Kashmir valley closed in answer to a strike call from separatists in protest at the killings.
Kashmir's Joint Resistance Leadership, including Syed Ali Gilani, Mirwaiz Umar Farooq and Muhammad Yasin Malik, have called for a complete shutdown on Thursday across the area against the killings.
Wednesday's incidents come close on the heels of days of disturbances witnessed in Kashmir Valley in the aftermath of the killing of 14 militants and five civilians as security forces stepped up counterinsurgency measures in the first week of April.