Pakistani authorities have moved to close down the offices of Jamaat-ud-Dawa, a charity run by the founder of the group India has blamed for last month's attacks on Mumbai in which more than 170 people died.
Analysts and diplomats have suggested that the charity is being used as a front for Lashkar-e-Taiba.
"The government has decided to proscribe Jamaat-ud-Dawa," Sherry Rehman, Pakistan's information minister, said on Thursday.
Hafiz Mohammed Saeed, who officially quit the Lashkar leadership in 2001 to become the head of Jamaat-ud-Dawa, was put under house arrest in eastern Pakistan for three months, Pervez Rathor, Lahore's police chief, said.
"We have taken action in response to orders from the federal government," he said.
Eight other officials from the charity are to be arrested, a government spokesman said.
The assets of the charity, Saeed and the eight other leaders will be frozen and their names will also be placed on the exit control list to prevent them from leaving the country, a senior government official said.
Police sealed the charity's offices in Karachi and Hyderabad and television reports said the charity would be banned, though no official announcement had yet been made as yet.
Jamaat-ud-Dawa is one of Pakistan's biggest charities and is known across the country for its earthquake relief work. It was among the first to deliver aid to the victims of the huge 2005 earthquake in Kashmir.
Kamal Hyder, Al Jazeera's correspondent in Pakistan, said that the arrest had already provoked an outcry in some circles.
"Hafiz Saeed is respected here because of the work he and his men performed in the aftermath of the earthquake in Kashmir [and consequently] the move to put him under arrest has already been condemned by the religious parties within the country," he said.
"They have been warning that the government may be acting too fast just on the basis of insinuations from India."
Jamaat-ud-Dawa also operates hospitals, schools and relief centres across Pakistan.
But it has been accused of being the political wing of Lashkar and on Wednesday the UN Security Council listed Jamaat-ud-Dawa as one of a number of covers used by Lashkar, and categorised it as a "terrorist" organisation.
'Epicentre of terrorism'
In India, Manmohan Singh, the Indian prime minister, said Pakistan's efforts to crack down on those allegedly behind the Mumbai attacks had not been enough.
Singh was speaking to parliament before the lower house passed a largely symbolic resolution condemning the Mumbai attacks and pledging to find those responsible,
|Saeed quit the Lashkar leadership in 2001 to become the head of Jamaat-ud-Dawa [AFP]
"We have to galvanise the international community into dealing sternly and effectively with the epicentre of terrorism, which is located in Pakistan," he said, prior to Saeed's house arrest.
"The infrastructure of terrorism has to be dismantled permanently."
Pakistan has denied any state involvement in last month's attacks.
Indian officials have demanded that Pakistan hand over 20 suspected fighter and others it wants for past attacks.
Analysts warn that Pakistan's intelligence agency has ties to some of those India wants and that the civilian government in Islamabad risks political fallout if it acts against them.
Keeping up the pressure on Pakistan, John Negroponte, the US deputy secretary of state, arrived in Islamabad on Thursday.
Washington has engaged in intensive diplomacy to stop tensions mounting between Pakistan and India, and to keep press Islamabad on its battle against the Taliban and al-Qaeda.