India's prime minister yesterday accused Pakistan of involvement in the suicide bombing that killed 44 paramilitary police in Kashmir on Thursday, and warned of a dire response.

Narendra Modi said the neighbouring country had made a "huge mistake" for which it will pay a "huge price".

Speaking after a meeting of the Cabinet Committee on Security, Mr Modi declared that India's security forces had been given "full freedom" to respond to the attack.

"If our neighbour thinks it can destabilise India, then it is making a big mistake," he said.

Mr Modi was reacting to claims from the Pakistan-based Islamist militant group, Jaish-e-Mohammad (JeM), that it carried out the attack on a paramilitary convoy on the outskirts of Kashmir’s summer capital, Srinagar.

India’s foreign office demanded that Islamabad take "immediate and verifiable action" against the JeM.

New Delhi has also withdrawn trade privileges extended to Pakistan under their long-standing Most Favoured Nation (MFN) agreement as part of "diplomatically isolating" Islamabad, said senior federal minister Arun Jaitley.

Pakistan, however, has dismissed all Indian charges of any involvement in the bombing, which it said was a "matter of grave concern".