The Pakistani cabinet on Wednesday approved a proposal granting India the status of "most favoured nation" in a move towards normalising trade relations between the two nuclear-armed arch rivals.

The cabinet's decision is final and could represent a breakthrough in efforts to thaw relations between the South Asian neighbours who have fought three wars since independence from Britain in 1947.

"The federal cabinet has unanimously approved India as the most-favoured nation," Information Minister Firdous Ashiq Awan told a news conference in the Pakistani capital Islamabad.

"This will bring economic benefits to us and this decision has been taken in the national interest," Awan added, conceding that some cabinet ministers had initially voiced objections to the proposal from the commerce ministry.

Pakistan has already bestowed the designation on more than 100 countries, including China -- Islamabad's closest foreign ally and India's key rival.

Objections from cabinet ministers related to the decades-old dispute over the Himalayan region of Kashmir, which has been the cause of two wars between India and Pakistan, and Pakistani perceptions of national security.

"The prime minister reviewed all the objections and took the cabinet into confidence that it will not hurt our national security, and then they unanimously approved this summary sent by the ministry of commerce," Awan said.

When Pakistani Commerce Minister Amin Fahim visited India in September, both sides agreed to more than double trade within three years to $6 billion, set up a second trade border post, and facilitate business visas for their citizens.

The decision reciprocates India's move to grant MFN status to Pakistan in 1996.

The status will remove discriminatory higher pricing and duty tariffs that stand as barriers to export between the neighbours, but non-tariff barriers continue to stand in the way of boosted trade, said analysts.

"We are already in talks with India for the dismantling of non-tariff barriers and once they dismantle it normal trading will begin, which is our aim," Secretary in the Ministry of Commerce, Zafar Mamoood, told reporters.

Indian economist Manish Mohan hailed the move as a major breakthrough that could open "enormous opportunities" in sectors such as agriculture, textiles and pharmaceuticals.

He said the new status would help close information gaps between India and Pakistan, strengthen economic ties, build confidence, encourage greater business cooperation, and boost transport links.

"These small steps will lead to giant steps as the mood in both countries is upbeat," Mohan, of the Federation of Indian Chambers of Commerce and Industry, told AFP.

India and Pakistan this year resumed formal peace talks, broken off after the 2008 Mumbai attacks in which 166 people were killed by Pakistani gunmen.

The two countries are also in talks for Pakistan to import electricity from its neighbour to overcome crippling power outages, a government official said.

"We are considering to import 500 MW of electricity from India," a spokesman for the water and power ministry told AFP.

Pakistani Commerce Minister Amin Fahim, during a recent visit to India, discussed the possibility of importing electricity and boosting trade ties, the spokesman said.

Discussions were at a "preliminary" stage and Pakistan Prime Minister Yousuf Raza Gilani is expected to take up the matter with his Indian counterpart Manmohan Singh later this month at a regional summit in the Maldives.

The prime minister's office confirmed Gilani would discuss "this mutually beneficial project with his counterpart".

Pakistan, with a population of 170 million, produces only 80 percent of its electricity needs, starving industry that has slumped in the face of recession and years of Al-Qaeda and Taliban-linked bombings.

The yawning energy shortfalls frequently trigger violent protests across the country, where opposition parties are setting in motion campaigns designed to force elections earlier than scheduled in February 2013.