The two countries reached an agreement following talks between aviation officials in New Delhi on Monday.
The decision comes a day after Pakistani President Pervez Musharraf said Islamabad was prepared to grant Indian planes overflight rights.
Musharraf had said Pakistan would make the agreement as a gesture of goodwill at a time when both countries appeared to be taking significant steps to reverse a major standoff.
India had snapped diplomatic and transport links with Pakistan after a December 2001 attack on its parliament it blamed on Islamabad-backed militants. Islamabad denies the charge.
Talks between aviation officials from Pakistan and India held in August in the Pakistani city of Rawalpindi ended inconclusively.
Earlier talks aimed at resuming air links broke down when India reportedly refused Pakistan's demand for guarantees against future unilateral overflight bans.
Thaw in relations
There has been a thaw in relations between the South Asian neighbours since April. Last week they began a ceasefire on their borders in divided Kashmir.
In Sunday's speech, Musharraf has said India and Pakistan need to move beyond their stated positions for the resolution of Kashmir dispute.
Meanwhile, Vajpayee has announced he will meet Pakistani Prime Minister Zafarullah Jamali at a summit of the seven-nation South Asian Association for Regional Cooperation (SAARC) in Islamabad in January, but Indian officials say there will be no summit-level dialogue.