(Adds protest in paras 10,11)

SRINAGAR, India, Dec 26 (Reuters) - Separatist violence in Indian Kashmir has fallen to its lowest level since an insurgency began nearly two decades ago, police said on Friday, but almost 1,000 Muslim militants are still operating in the region.

Indian officials say violence between Indian troops and separatist militants started a steady decline in 2004 after India and Pakistan, who both claim the region in full but rule in part, started a slow-moving peace process.

In an offensive against Muslim militants in Jammu and Kashmir state this year, Indian security forces killed 350 guerrillas, including 67 top-ranking commanders of different groups, Kashmir police director-general Kuldeep Khuda said.

The number of militant incidents fell by about 40 percent to 700 compared with last year, the lowest in the insurgency's history, Khuda said in a statement.

There are nearly 250 foreign militants among close to 1,000 guerrillas operating in Indian Kashmir, Khuda added.

These include members of the banned Pakistan-based group Lashkar-e-Taiba, which New Delhi blames for last month's Mumbai attacks which killed 179 people.

India has imposed a "pause" in the dialogue with Pakistan since the strike by 10 Islamist gunmen on the financial hub.

Separatists called for a boycott of state elections in Kashmir, which ended this week, the third ballot since the insurgency began in 1989. The election was relatively trouble-free.

Officials say more than 47,000 people have been killed in nearly two decades of violence in Kashmir, which was hit by massive anti-India protests earlier this year. Separatists put the toll at 100,000.

On Friday at least 18 people were hurt in downtown Srinagar, Kashmir's summer capital, when Muslim demonstrators clashed with troops in the latest protest against Indian rule, police and witnesses said.

Police with batons fired teargas shells and chased hundreds of stone-throwing separatists who cried "we want freedom", witnesses said. (Reporting By Sheikh Mushtaq; Editing by Matthias Williams) (For the latest Reuters news on India see in.reuters.com, for blogs see blogs.reuters.com/in/)

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