Footage of the attack that happened nearly a week ago in the state's Shopian district shows the bear trying to climb a tree in desperation as a crowd gathered around.
The villagers are seen tying a burning cloth to a pole, raising it towards the bear and poking the animal. The bear tries to perch itself further up on the tree's branches until it's unable to go up any further.
Soon engulfed in flames, the bear eventually climbed down and managed to escape, but its fate was not known.
"An inquiry has been ordered. A senior government official will hold the inquiry," Jammu and Kashmir Forest Minister Mian Altaf told NDTV.
"The bear had entered the village, but the locals had no intention to kill it. They had just gathered to watch the animal. I am told the bear ran away without being harmed," he said.
The attack was reported just two days before the Union Environment Ministry was due to host a global conference on bear conservation in New Delhi.
Vivek Menon, executive director of the Wildlife Trust of India, said bear conflict was a serious problem in Kashmir.
"Bears are entering orchards and maize fields, though not human settlements. Around 10 per cent of beds in Srinagar's main hospital are reported to be occupied at any time by people mauled by bears. There seems to be a general resentment and people are trying to take the law into their own hands," said Mr Menon.
Belinda Wright, executive director, Wildlife Protection Society of India, called for "better management, training and sensitisation" to reduce bear-human conflicts.
In the last one week, Kashmir has reported four instances of bear deaths in attacks by villagers.
Bilal, a student in Srinagar, said: "There is absolute lack of awareness. The wildlife department needs to work with communities that are facing this conflict in the state."