The dam has been mired in controversy from the start
Pakistan President Asif Zardari says relations with India could be harmed over a water sharing dispute in the disputed Kashmir region.
India inaugurated the controversial Baglihar hydro-electric dam project in Indian-administered Kashmir on Friday.
Pakistan has said the dam would deprive its agricultural regions of irrigation.
India says the project is crucial for meeting its power needs. In May 2005, the World Bank appointed an arbitrator to settle the dispute.
The committee report was never made public, but both India and Pakistan said it backed their stand.
"Pakistan would be paying a very high price for India's move to block Pakistan's water supply from the Chenab river," Pakistan's official news agency Associated Press of Pakistan (APP) quoted President Zardari as saying on Sunday night.
"Indian Prime Minister Manmohan Singh had assured me in our meeting in New York that his country is seriously committed to our water sharing treaty," he said.
Mr Zardari wants India to abide by the Indus Water treaty
Mr Zardari had met Mr Singh on the sidelines of the UN General Assembly in September.
"We expect him to stand by his commitment," he said.
Mr Zardari warned that any violation of the 1960 Indus Water Treaty by India "would damage the bilateral ties the two countries had built over the years".
Mr Singh inaugurated the first phase of the dam on Friday despite protests from Pakistan.
"This dam is key to the state's development," Mr Singh said at the inauguration ceremony on the Chenab river in the Hindu-majority Jammu region.
"Electricity is crucial for the development of industry and the project will give a push to the industrialisation of [Kashmir]," he said.
Mired in controversy
The Baglihar project will eventually generate a total of 900 megawatts of power.
The project has been mired in controversy. Work started on it in 2000 and it was due to be completed by June 2006.
But after Pakistan raised objections, the work was delayed.
Islamabad argued that the dam violated the World Bank-brokered 1960 Indus Water treaty which divided the rights of water from six rivers between India and Pakistan.
In February 2007, the World Bank overruled most of Pakistan's objections. At the same time, it told India to lower the height of the dam by 1.5m (five feet).
Some geologists too have expressed concern over the safety of the Baglihar project.
They say it is built over an active fault in an area prone to earthquakes.