Indian soldiers take position during a militant attack in Srinagar

Suspected Islamic militants have attacked an Indian government complex housing passengers due to travel on a landmark bus service between the Indian and Pakistani sides of Kashmir. The attack followed threats of violence by Muslim militants fighting for Kashmir's separation from India.

Heavy gunfire erupted and flames leapt from the complex in Kashmir's summer capital, Srinagar, where passengers due to travel on Thursday's inaugural bus ride were being kept in protective custody.

Officials say all the passengers are safe, although several others were injured and one attacker was killed.

The bus link between the cities of Srinagar and Muzaffarabad in Pakistan, due to be flagged off by Indian Prime Minister Manhoman Singh, is intended to reunite Kashmiri families separated by a half century of political conflict between the two countries.

But Islamic militants who oppose New Delhi's rule in India's part of Kashmir had threatened to turn the bus into a "coffin" for the passengers.

The bus service has been called the most significant step taken by India and Pakistan to restore normalcy to the troubled region.