SRINAGAR, India, Aug 23 (Reuters) - An Indian army officer and five separatist guerrillas were among eight people killed in a fierce gun battle raging near the border with Pakistan in Indian Kashmir, the army said on Saturday.

The clash, one of the deadliest in recent months, broke out on Friday morning at Machil near the Line of Control, a military control line that divides Kashmir between India and Pakistan.

The dead included a colonel and two soldiers.

"We are suspecting some more militant are hiding in the area, the operation still continues," Indian army spokesman Lieutenant-Colonel A.K. Mathur said.

Violence levels in Kashmir fell after India and Pakistan, which claim the region in full but rule it in part after gaining independence from Britain in 1947, began a peace process in 2004.

The nuclear-armed rivals have fought two of their three wars over the Himalayan region where a separatist revolt against Indian rule broke out in 1989.

India accuses Pakistan of training, arming and sending militants to Indian Kashmir to join the insurgency that has killed thousands. Islamabad denies the charge.

Friday's gun battle took place on a day hundreds of thousands of Muslims marched peacefully in Srinagar, Kashmir's summer capital, in some of the biggest anti-India protests since the outbreak of the separatist revolt.

On Saturday shops, businesses and schools remained closed in the region after separatists called a three day protest strike. (Reporting By Sheikh Mushtaq; Editing by Krittivas Mukherjee) (For the latest Reuters news on Nepal see in.reuters.com, for blogs see blogs.reuters.com/in/) (Reuters Messaging: krittivas.mukherjee.reuters.com@reuters.net; +91-11-4178-1000; Email: krittivas.mukherjee@thomsonreuters.com))

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