A grenade blast killed two people and wounded 15 in a crowded market in Indian Kashmir on Wednesday, two days after the declaration of the peace process between the leaders of India and Pakistan.

The blast threatens the peace process in the region that has been fighting for the dominance in Kashmir and some other disputable territories for years.

The grenade missed its target initially aimed at a security patrol and exploded on the street in Sopore town, about 50km north of Srinagar, summer capital of Jammu and Kashmir state, according to the police.

The blast may also be a serious obstacle to the launched bus service between the Indian and Pakistani sides, some officials say.

"The threat to the peace process from extremist forces and terrorist organisations has not been eliminated," said Indian Prime Minister Manmohan Singh.