Sharif's blunt demand came at a high-level meeting of civilian officials with the Inter-Services Intelligence (ISI) chief, Gen. Rizwan Akhtar, the influential Dawn newspaper reported on Thursday, citing sources who were present.
In a stunning admission, Foreign Secretary Aizaz Chaudhry said on Wednesday that "Pakistan faces diplomatic isolation and that (its) talking points have been met with indifference in major world capitals".
Even China, Pakistan's closest ally, had questioned the logic of repeatedly putting on technical hold a UN ban on Jaish-i-Mohammad leader Masood Azhar, Chaudhry said, the Dawn reported.
The meeting -- where there was an extraordinary verbal clash between the ISI chief and Punjab Chief Minister Shahbaz Sharif, the Prime Minister's younger brother -- came amid worsening ties with India.
Dawn said the civilian government, in a "blunt, orchestrated and unprecedented warning", asked military-led intelligence agencies "not to interfere if law enforcement acts against militant groups that are banned or until now considered off-limits for civilian action".
"Nawaz Sharif has directed that fresh attempts be made to conclude the Pathankot investigation and restart the stalled Mumbai attacks-related trials in a Rawalpindi anti-terrorism court," the daily said.
It said the government informed the ISI of the "growing international isolation of Pakistan and sought consensus on several key actions by the state" to reverse the situation.
As a first step, the ISI chief and National Security Adviser Nasser Janjua have been told to travel to each of the four Pakistani provinces with a message for ISI's sector commanders.
The first halt would be Lahore, capital of Punjab province, which borders India.
The Dawn said the decisions "appear to indicate a high-stakes new approach by the PML-N government" vis-a-vis the military-ISI and the terrorist groups.
Chaudhry said relations with the US had deteriorated and would likely further deteriorate because of the American demand that action be taken against the Haqqani network, which is active in Afghanistan.
India's principal demands were the completion of the investigation into the terror attack on the IAF base at Pathankot in January 2016 and "some visible action" against the Jaish-i-Mohammad.
The Jaish has been blamed for the Pathankot attack that left seven security personnel dead and also the September 18 assault on an army camp in Jammu and Kashmir that killed 19 soldiers.
"To a hushed but surprised room, Chaudhry suggested that while China has reiterated its support for Pakistan, it too has indicated a preference for a change in course by Pakistan," Dawn reported.
"The Foreign Secretary's unexpectedly blunt conclusions triggered an astonishing and potentially ground-shifting exchange between the ISI chief and several civilian officials."
Chaudhry underlined that the key international demands were for action against Masood Azhar and the Jaish as well as Hafiz Saeed and the Lashkar-e-Taiba, which attacked Mumbai, besides the Haqqani network.
Shahbaz Sharif complained to the ISI chief that whenever action had been taken against certain groups by civilian authorities, the security establishment had worked behind the scenes to set the arrested men free.
The Dawn quoted those at the meeting as saying that the Foreign Secretary's comments and Shahbaz Sharif's intervention were orchestrated by the Prime Minister to stir the military into action.
The ISI chief cautioned that action against terrorist groups now could be seen as "buckling to Indian pressure or abandoning the Kashmiri people".
India carried out a surgical strike on the night of September 28-29 in Pakistani territory and killed an unspecified number of terrorists across the Line of Control (LoC). Pakistan denies this happened.