Late last month, the military said it had foiled an infiltration bid by killing three militants in the area.
But three families in the northern district of Baramulla said the slain men were innocent relatives who had gone missing three days back.
On Friday, authorities ordered a probe into the incident and also exhumed the three bodies, which were found to be those of the missing men.
Thousands of villagers took to the streets of the men's home village in Baramulla on Saturday chanting, "we want freedom" and "hang the killers."
Police fired teargas shells and baton-charged the demonstrators. Witnesses said 14 people were hurt in the clashes.
The Indian army has ordered an internal inquiry into the killings.
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