China has accused Indian troops of illegally crossing a disputed Himalayan border and firing "provocative" warning shots at patrolling soldiers.
China's military said its soldiers were "forced to take countermeasures", though it is not clear what they were.
India rejected the allegations and accused Chinese troops of firing in the air during the face-off in the high-altitude Ladakh region.
Relations between the countries have steadily deteriorated in recent months.
India said the People's Liberation Army (PLA) had tried to approach a forward Indian position near the Line of Actual Control (LAC) and "fired a few rounds in the air in an attempt to intimidate [our] own troops".
"At no stage has the Indian army transgressed across the LAC or resorted to use of any aggressive means, including firing," the statement from India's military said.
The allegations of firing, if true, would be the first time in 45 years that shots had been fired there.
A 1996 agreement between both countries bars the use of guns and explosives from the Line of Actual Control, as the disputed border is known, although soldiers have clashed there before.
According to Chinese state media outlet the Global Times, the Indian troops had "illegally crossed the Line of Actual Control (LAC) into the Shenpao mountain region near the south bank of Pangong Tso Lake", quoting senior colonel Zhang Shuili, a spokesperson of the PLA.
India's move "seriously violated related agreements reached by both sides, stirred up tensions in the region... and is very vile in nature", said Mr Zhang.
But India's statement added that the army was "committed to maintaining peace", adding that it was also "determined to protect national integrity and sovereignty at all costs".
The PLA spokesperson also called on the Indian side to "immediately stop dangerous moves, withdraw personnel who crossed the LAC... and punish the personnel who fired the provocative shot".
The tense confrontation comes just one day after India's military alerted Chinese officials of reports that five Indian civilians had been kidnapped by Chinese troops from an area near the disputed border.
Indian cabinet minister KIren Rijiju tweeted on Tuesday that the PLA had responded to India's message.
"They have confirmed that the missing youths from Arunachal Pradesh have been found by their side," he said, adding that arrangements were being made to hand them over to Indian authorities.
Tensions rose in June when 20 Indian soldiers were killed in a violent skirmish with Chinese forces. Local media outlets said then that the soldiers had been "beaten to death".
In August, India accused China of provoking military tensions at the border twice within one week. Both charges were denied by China, which said that the border standoff was "entirely" India's fault.
The Line of Actual Control is poorly demarcated. The presence of rivers, lakes and snowcaps mean the line can shift.
The soldiers on either side - representing two of the world's largest armies - come face to face at many points. India has accused China of sending thousands of troops into Ladakh's Galwan valley and says China occupies 38,000sq km (14,700sq miles) of its territory. Several rounds of talks in the last three decades have failed to resolve the boundary disputes.
The two countries have fought only one war, in 1962, when India suffered a humiliating defeat.