Indian jets crossed into Pakistani territory on Tuesday, conducting what one minister said was an air strike on "terror camps," dramatically escalating tensions between the nuclear-armed neighbours who have fought three wars against each other.

The confrontation follows a growing rift between the arch-foes since a Feb 14 suicide bombing in the disputed Kashmir region, claimed by a Pakistani-based militant group, killed at least 40 Indian paramilitary police.

New Delhi blamed Islamabad, which denies having a role in the attack.

Pakistan downplayed Tuesday's incident, saying there were no casualties and that Indian jets "released a payload" hastily in a forest area after crossing Kashmir's Line of Control (LoC), which acts as a de facto border between the two countries.

"Air Force carried out aerial strike early morning today at terror camps across the LoC (Line of Control) and completely destroyed it," India's minister of state for agriculture, Gajendra Singh Shekhawat, said on Twitter.

Pakistan's military confirmed Indian aircraft violated its airspace, but said "no infrastructure got hit".

"Indian aircrafts intruded from Muzafarabad sector," Pakistani military spokesman Major General Asif Ghafoor said on Twitter early on Tuesday, referring to an area in the Pakistan-administered part of Kashmir.

Ghafoor (photo) said "facing timely and effective response from Pakistan Air Force,te Indian aircraft "released payload in haste while escaping which fell near Balakot. No casualties or damage."

Ghafoor, saying that more information would be released, tweeted four pictures of the alleged site where Indian aircraft dropped a payload near Balakot, purportedly showing a bomb crater in a forest area, but no serious damage.

Balakot, a town in the Khyber Pakhtunkhwa province in Pakistan, is about 50km from the LoC in Kashmir, which was the cause of two of the three wars India and Pakistan have fought since the end of British colonial rule in 1947.

Analysts have alleged Pakistani militants have their training camps in the area, although Pakistan has always denied the presence of any such camps.

Rare strikes

Indian markets fell on Tuesday amid concerns over increased tensions with Pakistan. The rupee fell to 71.16 to the dollar compared with Monday's close of 70.9850.

Read more: India airstrike on Pakistan sparks celebrations, seen boosting Modi support

The 10-year benchmark bond yield rose to 7.61 percent compared with 7.58 percent on Monday, while the broader NSE stock index declined 1.17 percent.

Shelling across the Kashmiri LoC has occurred frequently over the past few years, but airspace violations by jets are rare.

New Delhi said in 2016, following another large attack on Indian security forces in Kashmir, its troops crossed the LoC and carried out a "surgical strike" on suspected militant camps in Pakistan Kashmir.

Islamabad denied anything serious occurred.

Indian Prime Minister Narendra Modi (photo), facing a tight election in the next couple of months, has vowed a strong response to the Feb 14 attack in the Pulwama district of Kashmir, the deadliest single assault on Indian forces in 30 years of insurgency in the Muslim-majority region.

The attack was claimed by Jaish-e-Mohammad (JeM), prompting India to accuse Pakistan of harbouring the militant group.

Pakistani Prime Minister Imran Khan denied his country was involved and offered to help investigate the attack if any credible evidence was provided.

JeM had also previously caused a crisis between India and Pakistan over a raid on the Indian parliament in 2001.

Indian television channels quoted unidentified government sources as saying multiple targets were destroyed during the air raid into Pakistan involving a dozen Mirage aircraft.

CNN News18 said it was a major strike involving 1,000lb bombs and that the number of militants killed could be as high as 200.

It did not say where it got its information. The defence ministry reiterated it had no information.

"It's a fitting reply to the horror we witnessed in Pulwama," said former Indian air chief Pradeep Vasant.

"It's an airborne surgical strike; we have upped the ante," he said.

Mohammed Iqbal, a resident of Mendhar in India's side of Kashmir, said there had been jets flying all night.

- Reuters