The ceasefire violation took place at Jammu and Kashmir's Samba.
Four Pakistani soldiers have been killed in retaliation after an Indian jawan was shot dead in the Samba district, 41 kms from Jammu.
Pakistani Rangers who guard the border in Kashmir fired on a group of Indian soldiers on patrol, the second ceasefire violation in 24 hours. A jawan from the Border Security Force died.
He was identified as Constable Sri Ram Gowria, reported news agency Press Trust of India, quoting Rakesh Sharma, Inspector General (IG) BSF, Jammu Frontier. Another jawan suffered minor injuries, reports said.
Union Home Minister Rajnath Singh asked the BSF to give a fitting reply to the Rangers. An official statement released in Delhi said, "The Home Minister asked the DG, BSF to provide a suitable and appropriate reply for any such unprovoked firing".
This evening, India returned fire and three Pakistanis were killed. India stopped firing when the Pakistani Rangers raised a white flag, requesting time to remove the bodies of those killed. "Honouring their request, we stopped the firing and allowed them to lift the bodies," said Mr Sharma.
Last night, Defence Minister Manohar Parrikar told reporters that the Indian army would retaliate with "double the force" if Pakistan opened fire across the border. His comments came as tension between the two countries has sharply escalated.
Cross-border violence in Jammu and Kashmir has, in recent months, been the worst in over a decade. In October, at least 20 civilians were killed on both sides.
India summoned Pakistani High Commissioner Abdul Basit earlier this week to protest against the possibility of 26/11 mastermind Zakiur-Rahman Lakhvi walking free.
Lakhvi, who was arrested in 2009 for orchestrating the Mumbai attacks, was granted bail by a Pakistani court on December 18, drawing strong condemnation from New Delhi. He, however, is still in jail following arrest in another case.
Pakistan has said it will appeal against his bail in the Supreme Court but that has yet to happen.