Indian authorities and Kashmiri militants blame each other for burning down the mosque, which contained the relics of a Sufi saint. What is certain is that 70 Muslim guerrillas - most of them Afghans and Pakistanis conducting a jihad (struggle) against the primarily Hindu Indian security force occupying Kashmir - had been holed up inside the mosque for several months. In the meantime, more than 8,000 troops sealed off the town, forcing thousands of Kashmiris to flee their homes.
The showdown began on Monday when someone lit a fire that raged through Chrar-e-Sharief, a hillside town of wooden houses. Who started the fire is disputed, but the blaze engulfed the entire town, burning down more than 800 homes and shops but not the mosque and Sufi shrine.
According to the government, early yesterday morning the trapped militants decided they would rather blow up the mosque than surrender.
Ram Mohan Rao, a government spokesman, said the besieged militants were commanded by an Afghan named Mast Guel, an orthodox Muslim opposed to the Sufi belief in Islamic saints. That is why, according to the Indian spokesman, he had no remorse over setting fire to the shrine.
But Kashmiri militants and local people tell a different story. Witnesses said the army attacked the town with mortars and shellfire at 3am yesterday. Soon after, the mosque burst into flames.
A firefighter, Shaukat Ahmed, told the Independent: "There was heavy shelling that hit some of the houses standing near the mosque. The fire spread to the mosque, and there was no way we could stop it." The mosque and shrine were made of carved wood and had withstood blizzards, rain and earthquakes for over six centuries.
Fighting raged throughout yesterday as Indian soldiers advanced through the ruins of the town towards the burning mosque where the remaining insurgents were pinned down. The army finally gained control of the charred rubble of Chrar-e-Sharief mosque. So far it has recovered the bodies of 20 militants.
Despite a shoot-to-kill curfew in Kashmir valley yesterday, protesters, including one demonstration by thousands of women, tried marching to Chrar-e-Sharief but were beaten back with batons and tear gas. In Pulwama, security forces fired into a large crowd, killing one man and wounding 10.
Prominent Kashmiri Muslim militants were placed under house arrest, though one leader, Shabir Ahmed Shah, slipped out to lead one small protest march before he was recaptured. In Kashmir's summer capital, Srinagar, gangs of protesters hurled stones at Indian troops in their bunkers.
The destruction of the mosque comes at a time when many Kashmiris - who are mainly Muslims - are wavering in their support of the insurgents. Srinagar sources said that with the mosque in ruins, the Kashmiris' hostility towards the Indian authorities has hardened again.
The Kashmiri guerrillas are divided between those who want to unite with Pakistan and others who want independence. Indian officials said the militants inside Chrar-e-Sharief mosque belonged to several pro-Pakistan factions, including Harakat-ul-Ansar, which in the past kidnapped several Britons trekking in Kashmir.
The Indian Prime Minister, Narasimha Rao, described the mosque militants as "terrorists and foreign mercenaries", not mentioning Pakistan by name. Other Indian officials did, however. Rajesh Pilot, a home minister, warned Islamabad of "dire consequences" if it continued to "interfere" in Kashmir and hinted that India might invade an area of Kashmir occupied by Pakistan.
The mosque's destruction on a Muslim holiday is bound to enrage many of the India's 120 million Muslims.
The Prime Minister had planned to hold state elections in June or July as a way of restoring peace in Kashmir, where more than 10,000 people have died during the past six years of conflict. Few Kashmiri leaders are likely now to back the polls.