The decision was taken at the meeting of National Security Committee (NSC) presided over by Prime Minister Imran Khan to review the situation following the Indian government's move.
The country also announced that it is expelling the Indian High Commissioner. "We will call back our ambassador from Delhi and send back their" envoy, foreign minister Shah Mehmood Qureshi announced in televised comments, while a government statement declared that Pakistan will suspend trade in a downgrading of diplomatic ties between the arch rivals.
The NSC meeting, second such session in a week, also decided to review Pakistan-India "bilateral arrangements", take the matter to the UN and observe the upcoming Independence Day on August 14 in solidarity with Kashmiris, Dawn newspaper reported.
"The Prime Minister directed that all diplomatic channels be activated to expose brutal Indian racist regime, design and human rights violations," said a statement issued after the meeting.
The meeting was attended by Defence Minister Pervez Khattak, Foreign Minister Shah Mehmood Qureshi, Chairman Joint Chiefs of Staff Committee General Zubair Hayat, Army Chief General Qamar Bajwa, Naval Chief Admiral Zafar Mehmood Abbasi, Chief of Air Staff Air Chief Marshal Mujahid Anwar Khan, ISI Director-General Lt Gen Faiz Hameed and other officials.
"Independence Day this August 14 to be observed in solidarity with brave Kashmiris and their just struggle for their right of self-determination," the statement read. "August 15 will be observed as Black Day," it added.
On Tuesday, Imran Khan, addressing a joint session of the National Assembly, had said that Pulwama-like attacks can follow the revocation of the special status for Jammu and Kashmir, which can lead to a war between India and Pakistan.
"I can already predict this will happen. They will attempt to place the blame on us again. They may strike us again, and we will strike back," the cricketer-turned-politician told his country's Parliament.
Slamming the repeal of special status to Jammu and Kashmir, Khan had called on the world to raise its voice "for the people of Indian-Administered Kashmir".
The last NSC meeting was held on August 4 to discuss India's "use of cluster ammunition to target the civilian population on the Pakistani side of Kashmir".
(With inputs from IANS)