The beheading of an Indian soldier may have sparked a war of words between Delhi and Islamabad but the two nuclear rivals are both determined to prevent it from wrecking a fragile peace process.

India delivered a dressing-down to Pakistan's top envoy to New Delhi on Wednesday after senior ministers and the military denounced what they described as an "inhuman" and "dastardly" attack in the disputed Kashmir border region.

Pakistan's foreign minister in turn said she was "appalled" at the reaction from Delhi as Islamabad insisted no such incident had taken place. Pakistan says one of its soldiers was killed in cross-border firing on Sunday.

But for all the initial angry verbal exchanges, the episode has so far not triggered further military exchanges between the tens of thousands of troops on both sides of the de facto border known as the Line of Control (LoC).

And as tempers begin to subside, diplomats on each side are now stressing their desire to calm things down.

"It is important to exercise utmost restraint, not indulge in mutual recrimination," Salman Bashir, the Pakistani high commissioner to New Delhi, told India's NDTV on Thursday.

In the initial aftermath of the killings on Tuesday, Indian Foreign Minister Salman Khurshid railed against the "ghastly" attack.

But by the next day he was telling reporters: "We cannot and must not allow for an escalation of a very unwholesome event that has taken place."

His Pakistani counterpart, Hina Rabbani Khar, welcomed his comments.

"There was, I believe, a sense of trying to de-escalate on their side... and I think that is the right way to go," she told reporters on Thursday.

"Let me convey once again, even at this time, our commitment to normalise relations with India and when we say normalise relations with India we are talking about normalising in all aspects," she added.

After a total break in ties following the 2008 Mumbai attacks, which India blamed on Pakistan-based militants, relations between political leaders of both countries had been slowly improving.

Opening up trade and offering more lenient visa regimes have been discussed at recent high-level talks and Kapil Kak, a Delhi-based strategic affairs expert, said neither side wanted to undo all their hard work.

"India's reaction was only to make noises so that the government is not seen as wimpish two years before national elections," Kak told AFP.

"It is in nobody's interest to escalate tensions as the two countries have larger areas of convergence."

Muslim-majority Kashmir, a Himalayan region that India and Pakistan both claim in full but rule in part, has been the cause of two of their three wars since independence from Britain in 1947.

A ceasefire has been in place since 2003 along the LoC, but it is periodically violated by both sides.

While the three deaths this week have put strain on the truce, Kak said neither side wanted to see it collapse.

"The ceasefire is a milestone in our confidence-building measures as it not only helps local people in Kashmir but also serves a larger interest of both the countries," said Kak.

Ajai Sahni, an analyst at India's Institute for Conflict Management, said Khurshid had highlighted the lack of appetite among India's political leaders for confrontation with its nuclear-armed neighbour, even if such restraint undermined "our strategic interests".

Privately, senior military officers have said they want to see the beheading avenged with action on the ground, saying it was a question of "honour".

The contrast between the military's more bullish approach and the political establishment's desire to keep relations on an even keel carries echoes of recent differences of opinion towards China.

In a speech last month, Khurshid said New Delhi must accept China's increasing presence in its own backyard, only days after India's navy chief voiced "major concern" about Beijing's maritime strength.

Many of India's newspapers ran with headlines on Wednesday about Pakistani "butchery", but there was little clamour for revenge in Thursday's editions.

The Hindu newspaper highlighted previous border clashes which were bigger but less publicised, and said it had been told by one military official that Indian troops had beheaded a Pakistani last year.

In an editorial, The Times of India called for both sides to step up their contacts.

"It is imperative for both to engage with one another at various levels: political and diplomatic, military and intelligence," it said.