It accuses Kabul of attempting to defer its own responsibilities to combat the causes of Taliban-related violence.
In Islamabad on Monday, Chaudhry Ahmed Mukhtar, Pakistan's defence minister, rejected the charge that the ISI was involved in the Indian embassy bombing.
But a statement from Afghanistan's cabinet echoed Karzai's accusations.
"The people of Afghanistan, the world, know very well that Pakistan's intelligence agency and military have turned that country to the biggest exporter of terrorism and extremism to the world, particularly Afghanistan," the statement said.
James Bays, Al Jazeera's correspondent in Kabul, said: "This is the strongest statement we have ever seen from Afghan cabinet. It's not just words, it's actions. They are saying they are going to boycott three bilateral meetings - one of which is particlularly key because it is about the border."
The cabinet decision came as a protest to what it called "direct interference in its [Afghanistan's] internal affairs".
"Every day and all over our country, children, women, clerics, teachers, as well as international workers in Afghanistan ... are killed and wounded and disabled," the Afghan statement said.
The Afghan government's move is likely to further strain relations between the two countries, whose shared border has become a safe heaven for the Taliban, al-Qaeda and fighters from other armed groups.
"I think this will mean dismay for Nato and for the Americans," Bays said.
While Pakistan is yet to announce its official reaction to the Afghan accusations, Owais Ahmed Ghani, governor of the North West Frontier Province, has told Al Jazeera that the problems lie "within" Afghanistan.
Al Jazeera's correspondent Kamal Hyder has learnt that all Afghan television channels have been taken off air in Pakistan.