The grenade attack was carried out in Srinagar city, the summer capital of Indian-controlled Kashmir.
"Today militants threw a grenade in Lal Chowk (red square) area of Srinagar. Two civilians and two personnel belonging to Central Reserve Police Force (CRPF) were wounded," a police official in Srinagar said, Xinhua reported.
According to police, the grenade aimed at paramilitary personnel exploded with a bang triggering panic among the pedestrians.
The wounded personnel were immediately removed to the city's main hospital.
Following the attack, additional contingents of police and paramilitary rushed to the spot in a bid to find attackers.
A separatist movement and guerrilla war challenging New Delhi's rule is going on in Indian-controlled Kashmir since 1989.
Kashmir, a Himalayan territory divided between India and Pakistan is claimed by both in its entirety. The two countries have fought three wars, two exclusively over Kashmir.