Local residents and tourists claim that Yash Chopra's production house has turned the area into a "fortress", reports Greater Kashmir.
"Because of the shooting, the tourist rush to this place has thinned. The security grid is a cause of huge inconvenience to them. So they prefer to go to other places and evade Pahalgam," said businessman Muhammad Maqbool.
Yash Raj Films is currently completing the last schedule of the project, which had earlier shot in Mumbai and London.
"The entire area has been turned into fortress with security forces all around the place," added a source.
Khan is said to be constantly surrounded by security personnel, with barbed wire and barricades erected around the set of the movie.
Pahalgam had initially expected trade and tourism to benefit from the presence of the Bollywood icon.
"We were very excited that with the beginning of shooting we will get better opportunities of livelihood but it has proved to be a damp squib," said Zafar Ahmad, who runs a pony trekking agency.
YRF's untitled project will be released on November 13.
Watch a teaser trailer for the film below: