The US was "concerned about reports of local and foreign militants attempting to intimidate local residents and business owners in order to stymie normal economic activity," she said at a hearing on human rights in South Asia held by a Congressional subcommittee in Washington.
The US supports the Indian government's objectives "to increase economic development, reduce corruption, and uniformly apply all national laws in Jammu and Kashmir, particularly in regard to women and minorities," she said.
"While conditions in Jammu and Ladakh have improved, the Valley has not returned to normal," she said.
However, "the Department remains concerned about the situation in the Kashmir Valley, where daily life for the nearly eight million residents has been severely impacted since August 5" when India rescinded the special constitutional status, she said.
"The Department has raised concerns with the Indian government regarding the detentions of local residents and political leaders, including three former Chief Ministers of Jammu and Kashmir," she said, adding, "We have urged Indian authorities to respect human rights and restore full access to services, including internet and mobile networks."
"The United States supports the rights of Kashmiris to peacefully protest, but condemns the actions of terrorists who seek to use violence and fear to undermine dialogue," Wells said.
At the beginning of the hearing the Democrat Chairman of the House of Representative Subcommittee on Asia and the Pacific, Brad Sherman said that the world is focused on the Kashmir situation.
It is the most dangerous flashpoint in the world because there are two nuclear-armed countries involved, he said.
The ranking Republican member of the subcommittee Ted Yoho, acknowledged that Kashmir is a matter within "India's means".
But he criticised the restrictions in Kashmir saying that no one should "live under those circumstances."
Overall about India, Wells said, "We are proud to partner with India. Its Constitution mandates a secular state that upholds the rights of all citizens to practice religion freely, freedom of expression and speech, and equal treatment before the law."
(Arul Louis can be contacted at arul.l@.in and followed on Twitter @arulouis)
( With inputs from IANS )