Musharraf on Tuesday said India had confirmed the national status of 529 fishermen and 60 other civilians detained in Pakistan, who could be released any time.
The move is one of a series of peace gestures between Pakistan and India, who often arrest fishermen for straying into each other's territorial waters or villagers who inadvertently cross land borders.
Earlier this month, Musharraf recommended that 800 Indian fishermen should be freed after completing necessary legal formalities.
The gesture was made during a meeting between Musharraf and the visiting chief minister of Indian Punjab, Amarinder Singh.
Areas of dispute
The Pakistani president said the present atmosphere of goodwill between the two countries could be used to resolve "substantive" issues, particularly the Jammu and Kashmir dispute and the Baglihar dam.
Kashmir, which is claimed by both, has been the source of two of three wars between Pakistan and India since independence from Britain in 1947.
Bus links beween the two zones
of Kashmir are due to start soon
The two countries last year resumed dialogue on its status after coming close to their fourth war in 2002.
Both agreed last month to start a bus service from 7 April between Srinagar in the Indian-administered part of Kashmir and Muzaffarabad, capital of the Pakistani zone, primarily to unite divided families.
Musharraf also called upon India to adhere to the 1960 Indus Water Treaty brokered by the World Bank on sharing river systems.
Pakistan has asked the World Bank to appoint a neutral expert to resolve the row.
Islamabad says it fears the Baglihar dam on the Chenab river flowing from the Indian zone to Pakistan could deprive its wheat-bowl state of Punjab of vital irrigation water, and charges that it violates the water agreement.