Indonesian security forces are hunting separatist rebels after a gun battle left two policemen dead in Puncak Jaya highland in a remote area of Papua province.

"There had been an exchange of fire for about 30 minutes between police and the attackers," a police spokesman said. "We are still chasing the attackers."

The attack comes after pro independence rallies in parts of neighboring province of West Papua last week turned violent.

Activists and pro-Papuan independence groups alleged that police and paramilitaries shot four civilians after hundreds of people attended religious services in Timika, a city on the southern coast of West Papua.

The celebrations were to mark the 50th anniversary of the region's declaration of independence, which has never been recognized by Indonesia. Hundreds of people took the streets, many in traditional dress, waving the Morning Star flag and cheering for independence, a report by the Australian Broadcasting Corporation said.

Indonesian television showed police shooting into the air but not at crowds, said ABC which monitored the TV stations. Foreign journalists aren't allowed in the area.

"Police and military attacked the mass and shot four people after the raising of Morning Star flag in Timika Indah field," Markus Haluk, a member of the Papuan Customary Council, told the Jakarta Globe newspaper.

"They attacked thousands of people, who were participating in a peaceful service, from their combat vehicles. Six people were arrested and taken to the police office in Timika," said Haluk.

All four of the people shot were treated in a local hospital, he said.

But Indonesian security forces denied they fired at the crowd.

"We used persuasive methods in dispersing them, no shooting at all," Maj. Gen. Erfi Triassunu, commander of the Cendrawasih Military Command that oversees military operations in Papua, told the Globe. "They tried to raise the flag and police prevented it. Sometimes the report is being exaggerated. We only confiscated the flag."

The raising of the Morning Star flag is banned in Indonesia.

Papuans are ethnically Melanesian and closer to Australia's aborigines than the Asians who make up most of Indonesia's population. Papuans say their culture and identity is being eroded by an influx of Asian Indonesians.

West Papua and Papua together are about the size of Spain and occupy the western half of the island of Papua. Papua New Guinea occupies the eastern half.

West Papua and Papua have been a part of the Indonesian archipelago federation since the Dutch gave up their colonial rule and a slim majority in a controversial referendum in 1969 voted in favor of joining. Since then various separatist movements have been pushing for independence.

Papua and West Papua are the poorest regions in Indonesia but are extremely rich in natural resources. Separatist Papuan leaders claim few of the region's population get a fair share of the wealth when the resources are exploited, often by international companies.

A focus for protests, some of which have turned deadly, is the Grasberg Mine, the largest gold mine and the third largest copper mine in the world. It is near the Puncak Jaya in Papua. Nearly 20,000 people work at the mile-wide open-pit mine, majority-owned by an Indonesian subsidiary of Freeport-McMoRan.

In October, the mine's owners said they could no longer guarantee supplies because of a strike by workers, believed to be led by the separatist Free Papua Movement and which started in September.

Since the strike began, seven people have been killed near the mine, one of them a contract worker who had worked at the mine for 20 years.

A shootout at the mine by suspected members of the Free Papua Movement in July 2009 left three people dead, including Australian technician Drew Grant, 29, a project manager at the mine. He was killed when the vehicle he was driving was ambushed.