Mohinder Nath Sabharwal confirmed a report in Saturday's Independent about the sighting of the four hostages, who are being held by Islamic militants.
"Yes, they were sighted in the village of Hakura Budsgam in Southern Anantnag district two days before Christmas," he told a press conference.
Mr Sabharwal said that the four, who were kidnapped last July, are in good health and added that responsibility for their safety and security lies with their abductors. "We get information about their health and the villages where they are. However, we avoid any rescue operation as this may endanger the lives of the innocent tourists," he said.
He admitted that the government has had no contact with the kidnap group, known as al-Faran, for more than a month but added: "We have other channels of communication and we get regular information."
Mr Sabharwal said there was close co-ordination between Western diplomats in Srinagar and the state government.
A senior Indian army officer told the Independent the army has released the three al-Faran suspects arrested during a fierce gun battle at Dabran on 4 December in which the chief commander of the group, Abdul Hamid Turki, was killed.
Brigadier PS Bindra of the general staff in Kashmir said that during questioning it was found the suspects were not involved in the abduction, or with al-Faran. He said that the army would not attempt to mount a rescue operation however, as it might endanger the lives of the tourists.
Police sources say that one of the two Americans in the group, Donald Hutchings, has recovered fully after suffering severe frost bite. He was seen walking with the group on 23 December. One of the two Britons, Keith Mangan, who had a fall in the mountains while walking with his abductors, has also recovered and is in good health.