The shell was found in Gudali Chowk in Kishtwar town this evening, DIG (Doda-Kishtwar-Ramban Range) Gareeb Dass told PTI.
He said the grenade contained no explosive charge, adding "we are trying to ascertain where it came from. We have questioned some people."
Kishtwar MLA Sajjad Ahmed Kitchloo alleged the police had kept the device in the area to spark panic.
"I was told by police officers it was a rusted grenade," the NC legislator said.