Pakistan says it has shot down two Indian Air Force jets.
A spokesman said one of the aircraft fell in Pakistani territory and two pilots had been captured.
India has confirmed the loss of an MiG21 fighter and said a pilot was missing. It said it was investigating reports of his capture.
The development is the latest in an escalation between the two countries following a suicide attack which killed more than 40 Indian paramilitary soldiers in the disputed region of Kashmir.
A Pakistan-based group, Jaish-e-Mohammed, claimed responsibility for the attack.