The editor of the Kashmir Reader, an English-language daily, said police had come to their office carrying an order for them to stop publishing.
"There was no prior notice or communication from the government," Hilal Mir told AFP. "If there was a problem with the content, they could have sought an explanation from us."
The order said the Kashmir Reader "contains such material and content which tends to incite acts of violence and disturb public peace and tranquility".
Rights groups criticised the move, which comes weeks after local authorities briefly banned all newspapers from publishing and stopped internet services.
"The government has a duty to respect the freedom of the press, and the right of people to receive information," Amnesty International said in a statement.
"It cannot shut down a newspaper simply for being critical of the government."
Journalists marched to protest the move in Srinagar on Monday, calling it a violation of press freedom.
Nearly 90 people, most of them young protesters, have been killed in clashes with security forces in Indian-administered Kashmir since the death on July 8 of a popular militant leader.
It is the worst violence the troubled region has seen since 2010, although several armed groups have for decades been fighting Indian forces stationed there, seeking independence from India.
Kashmir has been divided between India and Pakistan since the two gained independence from British rule in 1947. Both claim the territory in full.
The order said the Kashmir Reader ,contains such material and content which tends to incite acts of violence and disturb public peace and tranquility,.
Authorities in Indian Kashmir have banned a local newspaper they said was inciting violence in the Himalayan region, which has been roiled by deadly violence in recent months.
