The nearly 30-day halt is the first of its kind in Indian-controlled Kashmir for nearly two decades, and follows an escalation of violence in recent months in the Muslim-majority Himalayan region.
India has 500,000 troops in Kashmir, which is divided between India and Pakistan and claimed by both.
Home Minister Rajnath Singh said the suspension was to allow a peaceful month of fasting beginning Friday.
The decision means Indian troops will stop the pursuit of militants and door-to-door house searches -- but they will still retaliate if attacked, officials said.
In a statement, Singh sought the cooperation of "everyone" in the initiative but did not make a direct call for militants to suspend hostilities.
There was no immediate response from Hizbul Mujahideen, the largest militant group active in Kashmir, but the Pakistan-based Lashkar-e-Taiba (LeT) militant group out-rightly rejected the truce offer.
"We are in favor of negotiations but the talks of negotiations in presence of armed occupation forces in the region are lies," a LeT spokesman said in a statement to a Kashmir-based news agency.
Indian authorities and the Hizbul Mujahideen, whose militants are all from Kashmir, briefly ceased fighting in 2000.
However, the three-decade-old conflict has never shown any serious sign of ending.
Violence escalated after Indian troops killed a top militant commander in a 2016 gunfight that led to months of street protests in which scores of demonstrators were killed.
Dozens of young men have since joined militant groups and there are now almost-daily gunfights between armed rebels and Indian soldiers.
More than 200 militants and 57 civilians were killed in 2017 after the Indian government launched "Operation All Out", aimed at ending the insurgency in the region.
