Pakistani President Pervez Musharraf has suggested Pakistan would give up its claim over disputed Kashmir if India accepted his peace proposals.
Gen Musharraf says he wants troops to withdraw from Kashmir
Gen Musharraf called for a phased withdrawal of troops in the region and self-governance for Kashmiris.
India responded by saying its position was that the map could not be redrawn but borders could be made irrelevant.
Both nations claim Kashmir in its entirety. It has sparked two of their three wars since independence in 1947.
Gen Musharraf told NDTV that he had a "four-point solution" to ending the impasse in the disputed region.
Apart from a phased withdrawal of troops and self- governance for Kashmiris, he said there would be no changes in the borders of Kashmir and a joint supervision mechanism involving India, Pakistan and Kashmir.
Asked whether he was prepared to give up his country's claim on Kashmir, Gen Musharraf said: "We will have to, yes, if this solution comes up."
The BBC's Barbara Plett in Islamabad says the remarks are being seen as a message to the Indian establishment that Pakistan is prepared for bold moves if Delhi is willing to reciprocate.
Analysts in Pakistan say it is likely that resolving the Kashmir dispute would be very popular among ordinary Pakistanis and would help to isolate the president's Islamist opponents.
It would almost certainly greatly improve economic relations with India, our correspondent says - something analysts believe could help the army retain its position as the dominant power in Pakistan.
'Deeper into slavery'
Reacting to the Pakistani president's proposals, India's junior foreign affairs minister Anand Sharma told reporters: "The Indian prime minister's position is to make the borders irrelevant, [that] we cannot redraw the map."
India did "not want to remain in conflict" with Pakistan.
In Indian-administered Kashmir there was a mixed response to the president's comments.
Moderate separatists welcomed the proposals as a "major opportunity", whereas hardliners said they were "unacceptable".
Many people in the state's summer capital, Srinagar, thought India unlikely to accept the plan, especially the withdrawal of troops and joint supervision of the territory.
Government employee Arif Ahmed said Pakistan should first hold a referendum on the plan.
Shopkeeper Abdul Razak said Kashmiris wanted freedom but feared for the future.
"Of course we wanted freedom. But we have been forced deeper into slavery.
"Whatever our leaders may decide will be good enough for us as long as it affords us a peaceful living," he told the BBC.
Indian analyst C Raja Mohan welcomed the proposals, describing them as the "closest to India's negotiated position [on Kashmir]".
"It is a reasonable position. India must welcome this proposal. It is a very positive moment shaping up between the two countries," he said.
The South Asian rivals have been holding talks since 2004 on a range of issues, including Kashmir.
India and Pakistan have fought two wars over Kashmir
Relations cooled in July when India blamed Pakistan over bombings in Mumbai in which 185 people were killed, and suspended the peace process. Pakistan denied allegations it had been involved.
But last month, officials from the two sides resumed meetings and agreed to set up a joint panel to share intelligence to help fight terrorism.
This is not the first time that Gen Musharraf has made "out of the box" proposals on Kashmir in media interviews.
And our correspondent says he has in the past expressed growing frustration at the lack of response in Delhi.
In January, he called for an Indian army pull-out from three cities to help find a solution to for the divided region. But Delhi said its army movements would not be dictated by a foreign country.
In March, Gen Musharraf told the BBC that he expected pressure from US President George W Bush for a solution of the Kashmir dispute.