The Indian army has admitted it made a mistake in shooting dead two teenagers in restive Indian-administered Kashmir this week, a rare public admission of fault by the military.

The teenagers died after soldiers fired at a car on the outskirts of Srinagar on Monday, while another youngster was critically wounded.

"We take responsibility for the death of the two boys in Kashmir," the chief of the army's northern command, D.S. Hooda, told reporters in Srinagar late Friday in televised remarks.

"We admit a mistake was made... there was some information about a white car with terrorists. Obviously, the identity was mistaken in this case," the lieutenant-general added.

Hooda promised an investigation into the deaths that would be conducted with "the highest standard of transparency".

Anger has been mounting in the scenic Kashmir valley over the killings, with the families of the dead youths rejecting the army's offer of one million rupees ($16,283) as compensation.

"The blood of my 14-year-old son is not so cheap that I would barter it. I reject this compensation," Mohammad Yousuf Bhat, one of the boys' fathers, was quoted as saying by the Times of India newspaper on Saturday.

Kashmir has been divided between India and Pakistan since independence from British colonial rule in 1947, but both claim the Himalayan region in full.

Tens of thousands of people, most of them civilians, have died in fighting between Indian forces and a dozen rebel groups seeking independence or a merger of the territory with Pakistan.

Kashmir is still reeling from devastating floods in September that killed more than 200 people and destroyed public infrastructure and businesses.

Hameedah Nayeem, chairman of the Kashmir Centre for Social and Development, told reporters in New Delhi on Friday that losses from the flooding were estimated at some $16 billion.

Human rights critics accuse Indian security forces -- estimated to number half a million in Kashmir -- of committing frequent rights abuses while fighting insurgents.

Indian officials say all accusations are investigated and the guilty are punished. However, punishments are rarely made public and soldiers are often tried by the army itself.

Kashmir Chief Minister Omar Abdullah said the latest killings had marred the political atmosphere, already strained by the devastating floods.

"Such killings have no place in an otherwise improving security environment where militancy incidents are at record low levels," Abdullah tweeted this week.