They said Shabir Ahmad Moonga was among dozens of people who were detained after a search operation by police and the army in Khrew village of south Kashmir Pulwama districts.
Police, however, said Moonga was killed in a pre-dawn clash between security forces and protesters in Khrew, some 20 km from here, near the saffron town of Pampore.
The body was handed over to his family early Thursday.
Residents alleged that Moonga's body bore torture marks and was apparently beaten to death after he was detained following nocturnal protests in the village.
However, the allegation could not be verified independently as officials in a hospital refused to comment. They said the autopsy report was still awaited.
The residents said at least 30 people were picked up by the security forces in the raid.
Authorities have imposed strict curfew in Khrew, Pampore and other adjacent areas to stop people from holding protests during Moonga's funeral.
With the latest death, the toll has gone to 66 in the ongoing Kashmir unrest triggered by the July 8 killing of rebel commander Burhan Wani.
The authorities, meanwhile, continued curfew for the 41st day on Thursday in much of the Kashmir Valley. The curfew has been extended during night hours for the first time since the ongoing cycle of violence started.