Mother-of-five Purni Orang was dragged from her home in the northeastern state of Assam and was hacked to death by more than a dozen local people wielding machetes.
The villagers blamed the 63-year-old for an illness that was afflicting their community.
The woman appears to have been taken from her home and dragged to a nearby river were she was stripped and killed.
“The attackers armed with machetes and other crude implements descended on the village and took away Moni Orang from her house and then brutally killed her,” senior police official Manabendra Dev Roy said.
“She was decapitated and her limbs were chopped off.”
When police arrived at the scene, the villagers attempted to stop them from reaching the body before they were eventually dispersed.
Seven people have been arrested for the killing, though local police said they had come under attack since detaining those involved.
Attempts have been made to storm the local police station to free those accused, they added.
“Moni was a witch and had cast evil spells on her enemies,” one villager told local television.
“There is no place for such sorcerers and so her killing is justified.”
According to reports, a younger woman claiming to be a priest identified Mr Orang as a witch and said she was bringing bad luck to the village.
India has seen an increasing number of murders reported where the victim has been accused of witchcraft, and several proviences have now brought in special laws to protect those accused of witchcraft.
At least 2100 people, mostly women, were murdered between 2000 and 2012 for allegedly practising witchcraft, according to the National Crime Records Bureau.