A nuclear monitoring institute in the United States has published satellite images of what it says is a new nuclear reactor being built in Pakistan.
Neither India nor Pakistan has signed the NPT
The Institute for Science and International Security (Isis) said that it could produce enough plutonium to make 40 to 50 nuclear weapons a year.
Pakistan's foreign ministry refused to comment on the charges, saying the Khushab nuclear site was well known.
A spokeswoman said that Pakistan was not pursuing any kind of arms race.
The BBC's Barbara Plett in Islamabad says Pakistan is unhappy about Washington's recent agreement to share civilian nuclear technology with India.
She says, contrary to the foreign ministry statement, analysts in Islamabad have warned that unless Pakistan gets a similar deal, or there is a policy of regional disarmament, conditions for a new arms race could be created.
The Isis report said that the construction of the reactor at Khushab could bring about a dramatic increase in the size of the Pakistani and Indian nuclear arsenals.
"The reactor under construction... could produce over 200kg of weapons-grade plutonium per year, assuming it operates at full power for a modest 220 days per year.
"At four to five kilograms of plutonium per weapon, this stock would allow the production of 40-50 weapons a year," the report said.
Isis published commercially available satellite photos which its analysts said appeared to show the plant under construction.
The Washington-based organisation said that work apparently began some time after March 2000, but "work does not appear to be moving quickly".
The report's authors, David Albright and Paul Brannan, said this could be because Islamabad is facing a shortage of reactor components or does not have the necessary weapons production infrastructure.
Asked whether Pakistan was building a new reactor or expanding its nuclear programme, Foreign Office spokeswoman Tasnim Aslam said she would not comment specifically.
"But Pakistan is a nuclear weapons state, it's a known fact. It is also a known fact that Khushab is hosting nuclear facilities."
The Indian foreign ministry has not responded to the report, but the US issued a statement urging Pakistan to refrain from expanding its nuclear programme.
"We have been aware of these plans and we discourage any use of that facility for military purposes, such as weapons development," White House spokesman Tony Snow said.
Mr Snow said he did not know whether or not the US had sought assurances from Pakistan that it would not use the new reactor to produce plutonium for nuclear weapons.
Correspondents say that the timing of the release of the report is significant, because it raises fresh concerns about an arms race in South Asia at a time when the US Congress is on the verge of ratifying a deal which would give India greater access to American civilian nuclear technology.
One of Pakistan's foremost nuclear experts, AQ Khan, has been confined to house arrest since he confessed in February 2004 that he helped deliver nuclear bomb technology to countries including North Korea, Iran and Libya.
The BBC's South Asia defence analyst Mahmud Ali says that Isis is a well-known and highly regarded organisation within academic circles, specialising in nuclear proliferation.
He says that the organisation - and the authors of the report - tend to be inclined against any form of proliferation around the world.
Neither Pakistan nor India have signed the nuclear Non-Proliferation Treaty (NPT), and both are believed by experts to have substantial quantities of weapons.
India is reported to have 69 Prithvi and Agni ballistic missiles - each with one warhead - plus many more bombs that can be dropped by bombers.
Pakistan is thought to have 165 missiles of various versions of its Hatf series of missiles - each with a warhead - plus bombs capable of being dropped by air.
But experts say that because Pakistan uses a simpler uranium-based warhead design - as opposed to the more sophisticated plutonium version used by India - Islamabad is eager to upgrade its arsenal.