"Young boys should stay at homes and not come to encounter sites. The bullet does not see who is coming or who it will hit...," warned Director General of Police SP Vaid.
He added, "Even security forces in an encounter take cover of a vehicle or house. Youths coming to encounter site are committing suicide."
Three were killed and 17 injured in clashes with security forces at a time they were engaged in an operation against terrorists hiding inside a house in Budgam in central Kashmir.
The police say locals threw stones at personnel and tried to break a cordon about a kilometer from the encounter site, apparently to distract them. One terrorist was also killed in the encounter that ended about eight hours later.
"It is quite a grave provocation. We have been able to minimise collateral damage and civilian casualties but there has been a lot of provocation from other side, instigating young boys, misleading them to throw stones and reach the site of the encounter," Mr Vaid said.
Chief Minister Mehbooba Mufti had told NDTV in an interview on Tuesday that parents should not let their children create obstacles for security forces.
"It is very unfortunate that young boys come out when there is an encounter," she said, adding that the administration was trying to make people aware "not to create obstacles when there is an encounter".
Ms Mufti also appealed to parents to "try and keep your children away" from encounter sites as they were "full of danger because of firing from both sides".