At least 14 civilians and one member of the security forces were killed in Nagaland state on Saturday night, after Indian forces mistook a group of labourers for militants and opened fire.
More than a dozen civilians and some members of the security forces were also wounded in the incident and violence that followed, said a federal defence ministry official based in New Delhi.
Indian Home Minister Amit Shah said he was "anguished" at the news of civilians, who were members of a local tribal group, being killed.
Nagaland's chief minister Neiphiu Rio told Reuters an investigation would be conducted and the guilty punished. He said the incident was the result of an intelligence failure.
India's northeast is home to a complex web of tribal groups, many of which have launched insurgencies, accusing New Delhi of plundering resources and doing little to improve their lives.
People in Nagaland have frequently accused security forces of wrongly targeting innocent locals in their counterinsurgency operations against rebel groups.
On Sunday, civilians launched protests against the government in the Mon district of Nagaland, where the 14 tribal people were killed.
"There is a mob outside which is pelting stones," a security official who did not want to be named told Reuters from the camp, which was surrounded by protesters.
"One civilian was shot dead and two more injured in firing by Assam Rifles a short while ago in Mon town," Noklem Konyak, president of the Konyak Students Union, told Reuters by telephone.
Konyak is the dominant tribe in Mon district.
Indian military and government officials were not immediately available to comment on the latest killing.
Saturday's incident took place in and around Oting village in Mon district, bordering Myanmar, during a counterinsurgency operation conducted by members of the Assam Rifles, the country's oldest paramilitary force, said a senior police official based in Nagaland.
Firing began when a truck carrying 30 or more coal mine labourers were passing the Assam Rifles camp.
"The troopers had intelligence inputs about some militant movement in the area and on seeing the truck they mistook the miners to be rebels and opened fire killing six labourers," the senior police official told Reuters, requesting anonymity.
"After the news of firing spread in the village, hundreds of tribal people surrounded the camp. They burnt Assam Rifles vehicles and clashed with the troopers using crude weapons," he said.
Members of the Assam Rifles retaliated, and in the second attack eight more civilians and a security force member were killed, the official said.
The Naga Mothers' Association (NMA), an influential rights' group in Nagaland, appealed to all Naga tribes to mourn the loss of civilian lives and demanded that the Indian army's cantonments should be shifted out of civilian areas.
"Let the world know our grief and sorrow and may our voices of protest be heard against the continuing militarisation and killings under the Armed Forces Powers Act," said Abeiu Meru, the president of NMA. The Act gives armed forces sweeping powers to search and arrest, and to open fire if they deem it necessary for the maintenance of public order in parts of the country they declared as "disturbed areas".
Some parts of Nagaland were given that designation by the federal government last year.
Police and local government officials have intensified vigilance and patrolling across the border state ahead of final rites for the dead scheduled on Monday.
In recent years India has tried to persuade Myanmar to evict rebels from bases in the thick jungles of the unfenced region, which borders Nagaland, Manipur and Arunachal Pradesh.