Officials from the two South Asian countries say they will appoint separate legal and financial consultants to begin work on the project to build a 2,600-kilometer pipeline to carry gas from Iranian gas fields to India through Pakistani territory.
The two-day talks in New Delhi also included issues such as financing and security of the pipeline, pricing and sharing of the gas.
The project cost was initially estimated at $4 billion, but an increase in steel prices could push that up substantially.
An energy expert with the Confederation of Indian Industry, V. Raghuraman, says the pipeline is vital for India, because energy demands are expected to double by 2020 as the economy grows.
"The pipeline is very strategic because Iran is sitting with a lot of gas reserves," he said. "The best way to access it is through the land route of Pakistan, and it gives the most win-win situation for all three countries - Iran, India, and Pakistan."
Pakistan says it wants the project completed by 2010 when it may face shortages of natural gas. It will also earn millions of dollars in transit fees.
Pakistan recently signed an agreement with Iran for the project. Officials say this will be expanded to involve India.
India is also considering two other gas pipeline projects, one that would run from Turkmenistan through Afghanistan and Pakistan, and another from Burma to the east of the country.
Mr. Raghuraman says India is exploring the possibilities of meeting its needs from several Asian countries. These projects could involve East Asian countries and former Soviet republics.
"In the long run we have to think of an Asian gas grid which will run along from the CIS to Malaysia, Thailand and Singapore," he explained.
India imports 70 percent of its crude oil, and only produces half the natural gas it needs.
The India-Pakistan-Iran pipeline project was proposed a decade ago, but it only gained momentum because of the peace process between India and Pakistan.
The project hit another roadblock when the United States voiced reservations about the plan because it involves Iran - a country it accuses of supporting terrorism and having a nuclear weapons program.
But India and Pakistan say they will not abandon a project which is in their national interest.