Heavy shelling began at 7.45am as border conflict, which has been taking place for a number of years, continued to cause havoc for civilians living in the area.
The latest violence comes just 24 hours after India threatened to invade Pakistan in a dramatic rise in rhetoric between the two nations.
Following the death of the Indian family, a New Delhi Defence Spokesman said: “Pakistan began heavy unprovoked firing around 7.45am which last for four hours.
“Pakistan forces fired automatic and small arms and mortars, and targeted civilian localities deep inside Indian territory — 3-4 km from the Line of Control (LoC).
“There is no army deployment or any installation in the area.”
Heavy exchanges of shelling have been on the rise over the past 12 months with both countries accusing the other of the increasing military action.
The two nations both claim they should have control of the Jammu and Kashmir regions, leading to a bitter dispute.
Following the deaths of the India citizens on Sunday the Defence Spokesman said: “Pakistan continues in its cowardly design of targeting innocent civilians, their homes and livestock in villages close to the LoC.
“The deliberate provocation has resulted in the loss of five precious and innocent civilian lives.”
The two injured in the conflict were airlifted to hospital for treatment.
The attack is likely to anger India, who have already warned they are unafraid of crossing the LoC if they believe Pakistan is putting their citizens in danger.
India’s Home Minister, Rajnath Singh, said: “We will not only secure India internally but can also cross border, if needed, to protect the country.”
He also vowed the contested region would always be a part of India.
The Indo-Pakistani Wars of 1947 and 1965 both revolved around competing claims for the area.
The politician said: “Kashmir was with India, Kashmir is with India and it will remain with India forever.
“Kashmir’s children are like my own and would not allow anyone to radicalise them.”
Mr Singh made his comments at the ‘Rising India’ summit, organised by News18.
The United Nations have encouraged the pair to take part in talks in a plea for the violence on the border to be de-escalated.