Hindus in Indian Kashmir called off their two-month protest after the government allowed them temporary use of land at the centre of a religious row for an annual pilgrimage, officials said on Sunday.

At least 38 people have been killed so far and more than 1,000 wounded in violence in Jammu and Kashmir, pitting Hindus in Jammu against Muslims in the Kashmir valley, the two main regions that make up the state.

The dispute began over a piece of forest land near a Hindu shrine, but snowballed into some of the biggest pro-independence demonstrations in Muslim-majority Kashmir since a revolt against Indian rule broke out in 1989.

Authorities re-imposed a curfew in many areas of Kashmir after briefly relaxing it earlier in the day, as protesters clashed with police in Srinagar, the summer capital.

Six people were wounded when police fired rubber bullets and tear gas shells and used batons to disperse demonstrators. Indian troops have been criticised by Kashmiris and international human rights groups for using excessive force, as several rounds of talks with protesters on either side failed.

On Sunday, officials and Hindu protesters agreed to use the disputed forest land to build temporary shelters, ending protests in Jammu city.

'We are temporarily suspending our strike,' Leela Karan Sharma, a Hindu protest leader said, as Hindus burst fire crackers in the streets to celebrate the agreement.

But authorities imposed a curfew in Jammu city to prevent any retaliatory violence and more rallies. 'We reject the deal between Hindu hardliners and the puppet government of Kashmir,' Masarat Alam, joint spokesman for the separatist groups said in Srinagar. 'We appeal to people to continue peaceful protests.'    

The dispute began in June after the state government promised to give forest land to a trust that runs Amarnath, a cave shrine visited by Hindu pilgrims to pray by an ice stalagmite.

Muslims were enraged at the decision, forcing the government to change its mind as the People's Democratic Party (PDP), a key partner in Kashmir's ruling coalition withdrew support from the Congress party-led state government.

Hindus in Jammu, angered by the government U-turn, attacked lorries carrying supplies to the Kashmir Valley and blocked the region's highway.

Challenging the blockade, Muslims took to the streets in Kashmir and clashed with police as separatists united to launch some of the biggest pro-independence demonstrations in Kashmir.

In the past three weeks, Indian police shot dead at least 30 protesters and more than 600 were wounded in clashes, as authorities struggled to restore law and order.

Several thousand Islamists rallied in the Pakistani city of Rawalpindi on Sunday to protest over Indian forces' alleged excesses and to express solidarity with Kashmiri Muslims.

They were scheduled to rally later in neighbouring Islamabad, Pakistan's capital.

The crisis has strained relations between India and Pakistan, which both claim the region in full but rule in parts, damaging a tentative peace process and raising fears Kashmir could again become a hotspot between the two nuclear-armed rivals.

India has also intensified a crackdown against separatists and detained at least five separatist leaders, including a top woman leader in an effort to defuse protests. - Reuters