The two women were killed in Sopore town, 55 kilometres (35 miles) north of the region's main city Srinagar, senior police officer Altaf Ahmad told AFP, adding that the motive was unclear.
"Two Lashkar-e-Taiba(LeT) militants barged into the house of Ghulam Nabi Dar late Monday night and dragged his two daughters, Akhtar and Arifa, out of their house before gunning them down," the officer said.
Chief Minister of the region, Omar Abdullah, condemned the murders, saying the sisters were 19 and 17.
The LeT has not claimed responsibility for the murders.
Militant groups are known to kill people suspected of being police informers, while security forces have been accused by human rights groups of extrajudicial killings and acting with impunity.
The deaths took the total number of people killed in insurgency-related violence in the region to six in January – the lowest monthly death toll recorded in two decades, according to police figures.
The four others killed in January included two suspected militants shot by security forces and two soldiers.
According to official police records, killings dropped to an all-time low last year, from 10 daily in 2001 and a peak of 13 a day in 1996 when the insurgency was at its height with daily bomb attacks and gunbattles.
A total of 375 insurgency-related deaths were recorded in 2010, the same as 2009 when the figures were the lowest for any single year since the start of the insurgency in 1989.
However, the figures do not include the fatal casualties of massive anti-India protests that rocked Kashmir for the third successive summer.
An estimated 117 people were killed, most of them shot by police and paramilitary forces, during the demonstrations against Indian rule in the Muslim-majority Himalayan region.
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