The two were identified as Javed Ahmed Bhat from Kulgam and Kamran Yusuf from Pulwama, who contributed photographs to some local newspapers, they said.
This was the first time that the National Investigating Agency (NIA) made an arrest from South Kashmir after filing a case on May 30 in which the leader of the Pakistan-based Jamaat-ud-Dawa and banned terrorist outfit Lashkar-e-Taiba, Hafiz Saeed, was named as an accused.
Yusuf, who had often been warned by the local police, was allegedly mobilising the youth and clicking their pictures for circulation in local and national newspapers.
The two, who will be produced before a special NIA court in New Delhi tomorrow, also circulated on social networking sites pictures and videos that sparked widespread rumours in the Valley, the officials alleged.
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The NIA has arrested seven people in the case of alleged funding of terror and subversive activities in the Kashmir Valley to fuel unrest there.
It also included causing disruption in the Valley by pelting the forces with stones, burning schools, damaging public property and waging war against India.
For the first time since the rise of militancy in Jammu and Kashmir in the early 1990s a central probe agency conducted raids in connection with the funding of terrorist and separatist groups.