Pakistan's cabinet has unanimously approved the award of "most favoured nation" trading status to India.
Pakistan had previously linked trade liberalisation with India to a resolution of the dispute over Kashmir, over which the nations have fought two wars.
Correspondents say the move is a significant step towards boosting the peace process between the neighbours.
India has already extended most favoured nation status to Pakistan.
The status typically reduces tariffs and increases import quotas.
Bilateral trade is currently put at about $2.75bn (£1.7bn) and the two sides agreed at a recent meeting in Delhi to boost it to $6bn within three years.
Although India granted Pakistan most favoured nation status in 1996, Pakistan says it has suffered from strict Indian customs rules and quality standards.
Pakistan Information Minister Firdous Ashiq Awan told a news conference in Islamabad: "Today after an extensive briefing by the commerce secretary, the cabinet unanimously decided to grant India most favoured nation status."
She added: "This will bring economic benefits to us and this decision has been taken in the national interest."
Ms Awan said some ministers had raised objections on the Kashmir issue, but added: "The prime minister reviewed all the objections and took the cabinet into confidence that it will not hurt our national security."
The BBC's M Ilyas Khan in Islamabad says that although India acknowledges the Kashmir dispute, it has insisted the two sides improve interaction in other fields while they search for a mutually acceptable solution.
Analysts say the Pakistani decision has come at a time when the country desperately needs trade concessions from international markets to prevent its economy from sinking further.
India and Pakistan resumed formal peace talks this year after they were broken off in the wake of the militant attacks in Mumbai (Bombay) in 2008.