India and Pakistan have exchanged belligerent warnings over disputed Kashmir, where a massive troop build-up and continued shelling have fuelled fears of all-out war.

Pakistan vowed to use "full force" in response to any attack by its nuclear rival India, which accuses Islamabad of backing "terrorism" by Islamic insurgents in Kashmir.

We'll write a new chapter of victory

Atal Behari Vajpayee

Earlier, Indian Prime Minister Atal Behari Vajpayee told front-line troops in Kashmir to prepare for a "decisive battle" against the insurgents.

India is believed to have deployed about 750,000 troops in Kashmir, facing some 250,000 Pakistani troops along the Line of Control.

Naval deployment

The Pakistani Foreign Ministry said India should desist from "blatant war-mongering" and instead focus on peacefully resolving the Kashmir problem.

"Pakistan has the ability to defend itself against any war imposed by India. Any misadventure by India will be met with full force," it said.

	Kashmir conflict: 1947 - India and Pakistan fight first war over disputed region 1965 - India blames Pakistan for insurgency, war breaks out again 1989 - Insurgency starts in Indian-administered Kashmir Click here for Kashmir Q&A

India has announced it is moving five warships to the Arabian Sea, closer to Pakistan in view of "the nation's security concerns and the operational situation".

The ships will reach the area within a week.

Speaking in Kupwara, northern Kashmir, Mr Vajpayee told Indian troops to "be prepared for sacrifices".

"But our aim should be victory, because it's now time for a decisive fight," he said, on the second day of his visit to the troubled region.

India accuses Pakistan of training and financing the militants who are fighting for independence or the merger of Indian-controlled territory with Pakistan.

Pakistan has denied that it backs Islamic insurgents.

'Proxy war'

"Our neighbour has found a new way of fighting. They don't fight face-to-face any more," said Mr Vajpayee. "They are fighting a proxy war."

Shelling has forced civilians to flee the border area

The BBC's Adam Mynott in Delhi says it was a bellicose speech, but it was delivered to a military audience which would have been expecting to hear tough talking from their prime minister.

Officials in Pakistan-administered Kashmir say at least two people were killed in further shelling on Wednesday. Earlier, they said three people had died in shelling on Tuesday night.

India said several of its citizens were killed in the artillery exchanges.

Tensions rose after India blamed Pakistani-backed fighters for an attack last week on an army base in Jammu, which left more than 30 dead.

British Foreign Secretary Jack Straw plans to visit the region next week, and a senior US State Department envoy, Richard Armitage, is also due there soon in an effort to calm tensions between the two nuclear-armed neighbours.

Supporters rallied at Lone's funeral

A statement issued after Wednesday's Pakistani cabinet meeting chaired by President Pervez Musharraf said "no organisation in Pakistan will be allowed to indulge in terrorism in the name of Kashmir".

Burial

The funeral of a leading moderate separatist politician, Abdul Ghani Lone, has been held in Srinagar.

Reports from his home town, Handwara, say the police imposed restrictions on the movement of people to prevent his supporters from joining his funeral procession.

Lone was assassinated on Tuesday by unidentified gunmen at a rally.

He was seen as a moderate who wanted talks with the Indian Government over his demands for a separate Kashmir state.

Indian-administered Kashmir's Chief Minister, Farooq Abdullah, said the attack was the work of Islamabad, but the Pakistani Government was quick to condemn the attack.