One of the dead was identified as 16-year-old Manzoor Kumar.
Haroon Ahmad, an eye witness, told Reuters news agency that security forces "fired indiscriminately" killing Kumar "on the spot".
Ahmad said protesters shouted "down with elections", "we want freedom" and other anti-government slogans as they carried the teenager's body away.
The shootings happened as Indian-administered Kashmir entered the second stage of voting in state elections - despite the fact Muslim separatists rejected the use of violence before the poll got under way.
Boycott call
|
"We appeal to the people to stage peaceful protests against the arrest of leaders"
Statement issued by an alliance of Muslim separatist leaders
|
Separatists have urged voters to boycott the poll, saying the election lacks legitimacy and will only serve to deepen New Delhi's hold over the troubled region.
An alliance of Muslim separatists issued a statement after the clashes backing non-violent protests against the Indian authorities.
"We appeal to the people to stage peaceful protests against the holding of elections in the presence of 700,000 troops and against the arrest of leaders," the Jammu-Kashmir Coordination Committee said.
The poll is being held in seven phases over as many weeks because of security concerns.
Staggering the vote has allowed the Indian authorities to intensively deploy troops as each area goes to the polls.
Earlier on Friday, 18 people were wounded in clashes between police and anti-election protesters in a separate incident also north of the summer capital Srinagar.
The vote comes just weeks after some of the worst protests against Indian rule in the country's only Muslim state since a fragile peace deal was agreed by Pakistan and India in 2004.
Both countries claim sovereignty over, and rule parts of, the divided region.
At least 48 people have died in demonstrations during the last few weeks, prompting a crackdown on separatist leaders who oppose the polls.
Detentions
More than 30 people who called for a boycott have been detained in recent days under legislation that allows police to hold people for up to two years without trial.
Police officials confirmed they were being held for advocating "secession, breach of the peace and intimidating people not to vote".
Separatists argue that free and fair elections are impossible in the presence of what they describe as an occupying force.
Indian election officials were initially encouraged by a higher-than-expected turnout overall - although voting in Muslim-dominated areas was said to be so low that security officers outnumbered voters.
The vote is the third election in the state since the separatist insurgency began in 1989, which has claimed the lives of at least 47,000 people.
Voting finishes in Jammu and Kashmir on Wednesday, December 24, with the final count due on Sunday, December 28.
Srinagar will vote in the seventh and final phase.