Pakistani Prime Minister Zafarullah Khan Jamali said in a televised address that he has ordered troops to observe the ceasefire from the start of Eid al-Fitr, a holiday marking the end of the Muslim fasting month of Ramadan, and hoped nuclear rival India would respond positively.
"We have ordered our troops deployed along the Line of Control to demonstrate a complete ceasefire from the day of Eid," Jamali said in his speech.
India reacted cautiously, saying that it would respond to Pakistan's offer on Monday.
"We will react tomorrow," Indian Foreign Ministry spokesman Navtej Sarna said.
Indian officials accuse Pakistani troops of firing along the Line of Control (LoC) to give cover to Islamic guerillas sneaking into Indian Kashmir to join battle there.
Islamabad denies it sends fighters across the ceasefire line and says it only gives political, moral and diplomatic support to what it calls the "Kashmiri freedom struggle".
Each week several people are killed or wounded on both sides of the Line of Control by exchanges of artillery and mortar fire between soldiers of Pakistan and India.
The idea of a ceasefire along the LoC was first mooted by Pakistani President Pervez Musharraf in August, who suggested both countries should observe it, though he had not mentioned any start date. New Delhi at the time poured cold water on the proposal, saying it contained nothing new.
Jamali said Pakistan was also ready to start a bus service between Muzaffarabad, capital of Islamabad-controlled Kashmir and Srinigar, state capital of New Delhi-controlled Kashmir, a proposal made by India last month.
Indian army soldiers along the LOC in Kashmir
"We invite India to start talks on deciding issues and modalities relating to start of the bus service. For this purpose, Pakistan is ready to host dialogue," he said.
The idea of a direct bus service between the state capitals of Kashmir had been widely hailed by Kashmiris, especially those whose families have been divided.
Jamali also offered to hold talks with India on a bus service between the Pakistani eastern city of Lahore and the Indian city of Amritsar,and a ferry service between the Indian port city of Bombay and the Pakistani port city of Karachi.
Besides he said he also backed resumption of air links and train services between the two countries.
In January Indian Prime Minister Atal Behari Vajpayee is expected to visit Islamabad to attend the seven-nation summit of South Asian Association for Regional Cooperation (SAARC).
"Pakistan wants peace with India," Jamali said. "We will be looking forward to the participation of Prime Minister Vajapayee to SAARC summit," he added.
Pakistan and India have taken largely symbolic steps to improve their relations, restoring full diplomatic ties and restarting a bus service between Lahore and the Indian capital New Delhi that had been suspended for 18 months.
The two countries have fought three wars since gaining independence from Britain in 1947, two of them over the Himalayan territory of Kashmir, and came to the brink of a fourth one last year.