SRINAGAR, India, Aug 11, 2008 (AFP) - Indian troops on Monday shot dead a prominent Kashmiri separatist leader as he was taking part in a demonstration in the revolt-hit region, doctors and witnesses said.

Sheikh Abdul Aziz, a former militant turned political leader, was killed while taking part in the protest march.

Earlier it was reported that one person was killed on Monday after Indian troops in Kashmir fired shots and tear gas to stop thousands of Muslims marching to the Pakistani part of the divided region, officials said.

Kashmiri separatist leaders, who called the march to protest against an economic blockade of the Muslim-majority Kashmir valley by Hindu extremists, were also placed under house arrest, police said.

Muslim separatists have threatened to march across the heavily militarised Line of Control to highlight what they say is the Kashmir valley's proximity to Pakistan rather than the rest of India.

"We have deployed thousands of police and paramilitary to prevent today's march," a Muslim police officer said on condition he not be named.

However, thousands of Muslims chanting "We want freedom" gathered in Srinagar, prompting police to fire shots in the air and lob tear gas canisters into the crowd.

The protesters retaliated by hurling stones.

Police prevented all vehicles from entering the city, an AFP reporter said, while separatist leaders Syed Ali Geelani and Mirwaiz Umar Farooq were placed under house arrest.

Nearly 50,000 Muslims were headed towards the de facto border in northern Baramulla district, witnesses said.

Authorities imposed a curfew in the Uri district, bordering Pakistani Kashmir, to prevent protesters from reaching the Line of Control, a police spokesman said.

Tensions first flared in June when the government of India's Jammu and Kashmir state said it was donating land to a Hindu pilgrimage trust.

The decision sparked violent protests by Muslims that left at least six people dead.

The plan was then cancelled, causing riots in Hindu-dominated Jammu, while Hindu hardliners began blocking road access to the Kashmir valley -- a move that has badly hit Muslim traders.

The blockade has led to shortages of essentials such as medicines.

Fruit growers and traders had also vowed to cross the Line of Control so they can sell their produce in Muzaffarabad, the capital of Pakistani Kashmir.

Police said they detained more than 100 fruit growers and traders and deflated the tyres of trucks before the march started.