Heavy firing, stone-pelting and bomb blasts occurred last evening and this morning following the dispute, they said.
There are reports of fighting between two sides owing to the sum of money won in gambling, Superintendent of Police Omvir Singh said.
A case has been registered against 40 people of which some have been arrested.
Jawans of the Provincial Armed Constabulary (PAC) have been deployed in the area, Singh said.
Among the accused, Salim allegedly runs a gambling racket in Vyapariyan area, he said.
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