There is a massive build-up on the border area
Reports from Pakistan say about 100 members of two militant groups that India alleges carried out the attack, in which 14 people died, have now been arrested.
But the Pakistani authorities are refusing to hand over any suspects to India unless Delhi provides evidence of their involvement in the attack
Indian Foreign Minister Jaswant Singh has said the two countries' leaders might discuss the crisis face-to-face at a regional summit in Nepal later this week.
'Explosive'
"All along the border there is a continuing Indian military build-up and concentration of forces far in excess of what we have seen in the past," Pakistani military spokesman Major General Rashid Qureshi was quoted as saying by the AFP news agency.
An army official in Pakistani-administered Kashmir described the situation as "still highly explosive and dangerous".
"Any small incident could lead to the situation becoming out of control," the official told Reuters news agency.
The warnings of conflict come soon after the first hopes emerged of a diplomatic solution to the crisis between the two nuclear powers.
The Indian foreign minister has described the arrest of the Pakistani-based militants as a "step in the right direction".
And Indian Prime Minister Atal Behari Vajpayee said in a New Year's Day message that his country was willing to go "more than halfway" to resolve its current problems with Pakistan.
The two nations on Tuesday renewed their commitment not to attack each others' nuclear installations.
Pakistan has also confirmed that UK Prime Minister Tony Blair will discuss the crisis when he visits Islamabad next week.
Leaders detained
The neighbours have fought three wars since independence in 1947, two of them over Kashmir.
Pakistan has come under international pressure in recent days to crack down on the groups India blames for the parliament attack - Lashkar-e-Toiba and Jaish-e-Mohammad.
A Lashkar-e-Toiba spokesman, Yahya Mujahid, told the AFP news agency that about 100 officials and activists from the two militant groups had been detained so far.
Those under arrest include the leaders of both groups.
"He's cracking down hard, and I appreciate his efforts. Terror is terror and the fact that the Pakistani president is after the terrorists is a good sign," said President George W Bush.
UN Secretary General Kofi Annan also hailed "the determined law enforcement action taken by the Pakistani authorities".
Back from the brink
As Pakistan took measures to comply with Delhi's demands, Indian forces kept up the pressure by shelling across the Line of Control in Kashmir.
Indian officials said their security forces had destroyed at least 12 Pakistani bunkers and killed 10 Pakistani soldiers in retaliatory gunfire.
But a Pakistan army spokesman denied there had been casualties or damage.
The two countries have imposed sanctions against one another, including banning commercial overflights and reducing diplomatic representation in their respective capitals.