"There has been no surgical strike by India, instead there had been cross border fire initiated and conducted by India," it said in a statement.
"As per rules of engagement same was strongly and befittingly responded by Pakistani troops."
In a statement from his office, Pakistani Prime Minister Nawaz Sharif "strongly condemned the unprovoked and naked aggression of Indian forces".
Defence Minister Khawaja Asif said two Pakistani soldiers killed and nine wounded by what he characterised as "small weapon fire".
Tensions between the two arch rivals have been boiling since the Indian government accused Pakistan-based militants of launching an assault on an army base in Kashmir earlier this month that killed 18 soldiers.
India has also been on a diplomatic drive to isolate nuclear-armed Pakistan since the raid on September 18, the worst such attack in more than a decade.
On Tuesday India said Prime Minister Narendra Modi would not attend the South Asian Association for Regional Cooperation (SAARC) summit in Islamabad in November, in a major snub to its neighbour.
Ashok K Mehta, a retired major general in the Indian army, said it was the first time in a decade that officials in New Delhi had acknowledged its troops had crossed into the Pakistani side of the LoC.
"We have to see whether the Pakistani army will respond in kind.... Now the the ball is in Pakistan's court if they want to escalate things."
Residents on the Pakistani side of the LoC were meanwhile hunkering down over fears that the situation could unravel further.
"I did not send my children to school today. The situation is very tense," said Tahir Iqbal, who runs a grocery shop in the town of Athmuqam.
Kashmir has been divided between India and Pakistan since gaining independence from Britain seven decades ago.
The Indian-controlled part of the picturesque territory has a Muslim majority and there are a number of armed separatist groups who are fighting to break free from New Delhi.
India has said the attack on the Uri army base in Kashmir was carried out by a Pakistan-based group called Jaish-e Mohammed.
Tensions had already been high in the region since the Indian army killed a leading Kashmiri separatist in a gunfight in early July, sparking a series of protests that have been staged in defiance of curfew orders.
More than 80 people have been killed in the Indian-controlled part of Kashmir since July, many of them shot by the army at the protests.
