Reports of a $500-million Washington aid package to Pakistan and a period of intense border shelling in Kashmir have overshadowed the run-up to U.S. Secretary of State John Kerry's visit to India in the next few days.
Kerry travels to India on Saturday to attend an investment summit promoted by Prime Minister Narendra Modi and held in his home state of Gujarat, the U.S. State Department said. It declined comment on media reports Kerry may also visit Pakistan.
President Barack Obama will make a second official trip to India later in the month, seeking to strengthen ties between the world's two largest democracies.
Despite Modi and Obama's well-publicised chemistry at talks in Washington last year, renewed friction between South Asia's nuclear-armed neighbours is a reminder of underlying anger in New Delhi at U.S. support for its arch-rival.
"This may be a bit of a sobering moment for those who thought we might see a blooming of the relationship," said Harsh Pant, professor of international relations at King's College London.
India and Pakistan have fought three wars since independence in 1947, and Washington's financial support to Pakistan's military and government is a constant irritant in New Delhi, where Kerry is widely seen as pro-Pakistan.
ANGER OVER AID
Pakistan announced last week that the U.S. ambassador had said a request had been made to Congress for a $532 million aid payment under an act co-authored by Kerry in 2009. Washington denied that on Monday, but not before drawing India's ire.
"How the Government of the United States of America decides to spend U.S. tax payers' money is entirely its prerogative," foreign ministry spokesman Syed Akbaruddin said in a statement.
"However, India does not believe that Pakistan is showing 'sustained commitment'," against Islamist militants, he added.
State Department spokeswoman Jen Psaki said no request had been made to U.S. Congress for a payment under the act, which requires Pakistan to cease support for extremist groups such as the Taliban and al Qaeda.
However, she said other funds were available to Pakistan.
In 2009, under the Kerry-authored act, the United States agreed to give an annual $1.5 billion to Pakistan, and in 2013 handed over the cash under a waiver despite what critics said was a lack of progress in countering Islamist militancy.
Funding for 2014, the last year of the four-year plan, has not yet been released, Psaki said.
Washington has for years been trying to encourage a rapprochement between India and Pakistan.
Relations were badly damaged in 2008 when a group of Pakistani militants killed 166 people in a three-day rampage through the Indian city of Mumbai after landing by sea.
India's coast guard last week said four suspected militants blew themselves up in a boat in waters between the two countries, an account that has been questioned by Indian media and opposition parties, and denied by Pakistan.
In the disputed region of Kashmir, thousands of Indians have fled their homes as fighting between India and Pakistan spread along a 200-km (124-mile) border stretch. At least 10 people have been killed since Dec. 31.
Tensions have been high since Modi called off peace talks in August, and border clashes have erupted intermittently since.
Indian and Pakistani security officials have not spoken since Jan. 1 to reduce the violence, according to D.K. Pathak, director general of India's Border Security Force. Pakistan has lost more lives and suffered more damage to property, he said.
"It is not a happy situation and we would like the restoration of normalcy as fast and soon as possible," said Pathak. "But what can be done? If firing comes from their side we definitely have to respond."
Pakistan in turn accuses India of killing two of its men in an ambush on New Year's Eve.
About 6,000 civilians in Indian-controlled Kashmir fled late on Monday as fighting spread to civilian areas, said Shantmanu, divisional commissioner of Jammu region. About 4,000 left after fighting began last week.
"We had a narrow escape and there is a war-like situation," Sham Kumar, 54, from Sherpur village told Reuters. "Pakistani troops are using long-range weapons. It is the first time we have seen such intense shelling."
The Pakistan foreign ministry accused India of "unprovoked firing and targeting of civilians."