* Pakistan says one soldier killed, India says any shots 'retaliation'
* India tells UN tougher action needed on terrorism
By Katharine Houreld
ISLAMABAD, Jan 16 (Reuters) - Pakistan's army protested to India on Wednesday over the killing of one of its soldiers in Kashmir, the fifth fatality this year in heightened hostilities that have raised concern about violations of the truce between the nuclear-armed neighbours.
Indian troops shot the soldier at a position called Kundi during firing from the Indian side of the Line of Control (LoC) in the disputed Himalayan territory, the Pakistani army said in a statement.
Two Pakistani and two Indian soldiers were killed this month in the worst outbreak of violence in Kashmir since India and Pakistan agreed to a ceasefire nearly a decade ago. India and Pakistan have fought three wars since independence in 1947, two of them over the region that both countries claim.
Following public and media anger at the alleged decapitation of one Indian soldier, Indian Prime Minister Manmohan Singh said there could be "no business as usual" with Pakistan, and the army chief said his commanders should retaliate for provocation.
Despite the heated rhetoric, government spokesmen on both sides have insisted the deaths will not derail talks meant to improve relations, and experts say an escalation is unlikely.
The Pakistani military said in a subsequent statement that both sides had spoken over a hotline on Wednesday and Islamabad lodged a strong protest over a "ceasefire violation", but both sides agreed on the need to reduce tension.
Pakistan's government is fighting for survival over corruption charges and its response has been less fiery than that of India to the frictions on the border.
Pakistani Foreign Minister Hina Rabbani Khar said on Wednesday, during a visit to New York, that she was open to talks with her Indian counterpart in a bid to quell tensions.
"These recent incidents have been extremely unfortunate," she told the Council on Foreign Relations. "We would be open to a discussion, a dialogue at the levels of the foreign minister, to be able to resolve this ... and to recommit ourselves to respect for the ceasefire."
The Pakistani army director of military operations had said he would call his Indian counterpart on Wednesday to complain about the latest killing. India's army spokesman confirmed the call took place on a hotline set up to help defuse tension, but did not give details of the conversation.
India did not confirm the killing, but said if a soldier died it could have been from Indian gunfire in response to shots from Pakistan.
"If any Pakistani soldier has been killed, it may have been in retaliatory firing. Our soldiers do not cross the LoC," army chief General Bikram Singh told reporters. The latest skirmish followed a warning by Singh on Tuesday that he expected his commanders to respond aggressively to "provocation and fire".
Singh spoke during a visit to the family of Lance Naik Hemraj, a soldier the Indian army says was decapitated by Pakistani soldiers last week. The reported mutilation triggered public and media outrage in India and unusually strong language from the government and army.
SENIOR CITIZENS TURNED BACK
A new visa program that was hailed as a sign of thawing relations before the latest fighting seemed to be affected by the tension. Pakistani senior citizens were turned away at a border post the first day the program was to come into effect.
A senior Indian home ministry official said the visa program had been "put on hold owing to technical issues".
In a sign of the emotion the attacks have evoked in India, nine Pakistani hockey players who were signed up to play in a private league were sent home following protests.
Indian-Pakistani relations had improved after nose-diving in 2008 when gunmen killed 166 people in Mumbai in a three-day rampage that India blamed on a Pakistani militant group.
India blames the Lashkar-e-Taiba militant group for that attack and says it enjoys official protection in Pakistan. Pakistan denies supporting the group. Indian officials have accused the LeT of stirring up the recent trouble on the border, a claim denied by its founder, Hafez Saeed.
"Resort to the use of terrorism as an instrument of state policy is short-sighted," India's ambassador to the United Nations, H.S. Puri, told the U.N. Security Council, which is currently headed by Pakistan.
"Those who play with the sword shall also perish by it."
Firing and small skirmishes are common along the internationally recognised 740-km (460-mile) Line of Control despite the ceasefire that was agreed in 2003.
The Indian army this week released photographs of landmines it said were laid by Pakistan and discovered in Indian territory. The army said there had been an increase in the number of mines found in recent months.