Pakistan says the Commonwealth decision to suspend it from the body because of the imposition of emergency rule is "unreasonable and unjustified".
Musharraf has faced international fire over the state of emergency
The Commonwealth had failed to appreciate Pakistan's "serious internal crisis", the foreign ministry said.
It added that it would review its ties with the group after the decision.
Pakistan's Supreme Court, now staffed by judges seen as loyal to President Pervez Musharraf, has upheld the imposition of the emergency.
"All acts and actions taken are also validated," the new chief justice of the court, Abdul Hameed Dogar said, the Associated Press news agency reports.
After imposing emergency rule on 3 November, Gen Musharraf sacked Supreme Court judges who were preparing to rule on the legality of emergency rule and his next term as president.
On Thursday Pakistan's Supreme Court dismissed the final legal challenge to Pervez Musharraf's re-election as president.
The president has said that would allow him to step down as head of the army.
In recent days Gen Musharraf's government says it has also released more than 3,400 people who had been detained under the emergency rule which the president imposed earlier this month.
And following a visit by US envoy John Negroponte, opposition leader Imran Khan was freed.
Meanwhile there are signs that former Prime Minister Nawaz Sharif may be making another attempt to return from exile in Saudi Arabia to challenge Gen Musharraf.
In September he was deported hours after landing in Islamabad.
Commonwealth Secretary General Don McKinnon said Pakistan was being suspended "pending restoration of democracy and the rule of law".
The Commonwealth Ministerial Action Group (CMAG), the group reviewing the status of Pakistan's membership, decided that despite some recent easings of the emergency, not enough had been done.
The BBC's Peter Biles in Kampala says that some Asian nations had reportedly resisted the suspension.
Mr McKinnon said the 53-member Commonwealth had reached the decision by consensus.
"CMAG agreed that notwithstanding some progress by the Pakistan government since its last meeting, the situation in Pakistan continued to represent a serious violation of the Commonwealth's fundamental values," Mr McKinnon said, reading from a statement.
Pakistan's ambassador to Washington Mahmud Ali Durrani told the BBC the government was committed to lifting the state of emergency as soon as possible, but that would be done according to Pakistan's timetable, not under threat from outside powers.
It is the second time that Pakistan has been suspended from the Commonwealth, the last time being in 1999, after Gen Musharraf seized power in a coup.
It was reinstated in 2004.
Pakistan will now be banned from attending the organisation's meetings and taking part in the Commonwealth Games.
Though in diplomatic terms being suspended has little impact, our correspondent in Kampala says that being a member does open doors, and as Mr McKinnon was keen to point out, just a year after its last suspension Pakistan was voicing a desire to return.
Progress will now be reviewed after parliamentary elections which Gen Musharraf has promised will take place in January.
The Commonwealth foreign ministers had given Pakistan 10 days to lift its emergency rule or face suspension.
Judges and lawyers have held a series of protests in Islamabad
They also said Gen Musharraf had to step down as army chief, release political detainees and restore press freedoms.
Gen Musharraf imposed the state of emergency and suspended Pakistan's constitution on 3 November. He later defended his decision, saying that he had taken the "in the national interest".
He said Pakistan was in a crisis caused by militant violence and a judiciary which had paralysed the government.
Pakistan has been engulfed in political upheaval in recent months, and the security forces have suffered a series of blows from pro-Taleban militants opposed to Gen Musharraf's support for the US-led "war on terror".