The Kashmir police chief said the army encircled Hazrat Bal mosqueafter it was discovered that two locks on the door guarding the Prophet's holy relic had been tampered with. It is potentially one of the most explosive episodes since the mainly Muslim Kashmiris began an insurrection three years ago against Indian rule. So far more than 2,500 people have died.
The 17th-century mosque in the Himalayan peaks is revered by Kashmiri Muslims. When the strand of hair - it was brought to the mosque from Saudi Arabia in the 17th century by a wealthy Kashmiri businessman - was misplaced in 1963, more than 100 people were killed in riots that followed.
Several hundred troops have surrounded the mosque, on the shores of Dal lake; the building is thought to contain more than 100 heavily armed Muslim militants.
A curfew was enforced in Srinagar, the state capital, where popular support for the Muslim insurgents is strongest. Tension is running high as thousands of extra soldiers and paramilitary forces patrol the streets.
Authorities said that the Muslims had been using the Hazrat Bal compound as a weapons cache and hideout, believing they were safe because security forces would not want to risk a political uproar by raiding the mosque. The forces are primarily Hindus, and violation of a Muslim shrine could easily trigger sectarian clashes across India. One death was reported early yesterday.
Just after noon, witnesses heard five loud explosions coming from a school and a Koranic library within the compound. Lieutenant-General Amin Zaki said the militants had set fire to buildings, but several witnesses claimed to have seen soldiers setting off the blasts. Flames threatened to spread to the main shrine, but six fire tenders spent the afternoon trying to keep the blaze under control.
By late afternoon, the rebels were still refusing to surrender.