Addressing a joint session of the National Assembly, Khan said the India-Pakistan situation should not "get out of hand" otherwise "Pakistan will have to retaliate". The announcement was greeted by thumping of desks by Pakistani lawmakers.
Sources said modalities of Varthaman's return are being worked out and he might be handed over to India at the Wagha border.
The surprise announcement came barely an hour after Foreign Minister Shah Mehmood Qureshi said that Prime Minister Khan is ready to talk to Indian Prime Minister Narendra Modi to de-escalate Indo-Pak tensions.
"Countries are ruined because of miscalculation," said Khan. Alleging "war hysteria" in India, he said: "I'm afraid there might be a miscalculation. "War is not a solution. If India takes any action, we will have to retaliate." The joint session of Parliament was called to discuss the rising tensions with India.
"The only purpose of our strike (on India on Wednesday) was to demonstrate our capability and will," said the Prime Minister. "We did not want to inflict any casualty on India as we wanted to act in a responsible manner."
He said he tried to call Indian Prime Minister Narendra Modi on the telephone on Wednesday because "escalation is not in our interests nor in India's"
More details awaited..