More than 2,000 suspected militants were arrested
The amnesty would cover many of those held without charge for almost two months, since the government banned five hard-line Islamic groups, accusing them of inciting sectarian violence.
More than 2,000 Islamic radicals were rounded up in a crackdown in January following a landmark speech by Pakistani President Pervez Musharraf denouncing extremism.
An Indian spokeswoman said the amnesty showed Pakistan's lack of sincerity in tackling terrorism, and would allow the militants to carry on their previous activities.
The arrests were welcomed at the time by India, which blamed two of the banned groups for the December attack on its parliament.
They were also praised by the United States as a contribution to the war against international terrorism.
The news of the amnesty came just as the police reported that a Shia Muslim has been shot dead in a sectarian attack in Multan in the province of Punjab.
Radicals
Two of the banned groups, the Lashkar-e-Toiba and the Jaish-e-Mohammad are accused of carrying out attacks in Indian-administered Kashmir.
The other groups have been charged with carrying out sectarian attacks within Pakistan.
"The government will not take any further action against those activists of the banned groups who were arrested but had no criminal charges registered against them," the state-run APP news agency quoted Interior Minister Moinuddin Haider as saying.
Correspondents say the long detention of suspected militants has stretched the limits of Pakistani law.
The government insists that it will not release those already charged with killings and violence.
"We will continue our jihad (holy war) against such elements," Mr Haider was quoted as saying.
However, sectarian violence, especially attacks on Pakistan's Shia minority community, appears to have picked up in recent weeks.
Earlier on Friday, a retired bank official, Panjtan Kazmi, was shot dead by unidentified gunmen in Multan, over 300 km south of Lahore.
Less than two weeks earlier, gunmen attacked worshippers at a Shia mosque in Rawalpindi, close to the capital Islamabad, killing 11 and injuring many others.
Sectarian tensions are mounting as the Shia community prepares to observe 10 days of mourning, the 'Moharram', on the anniversary of the killing of Prophet Mohammad's grandson Imam Hussain.