The captured Indian fighter pilot, who was attacked by a mob and then paraded on video by Pakistan's army, will be released on Friday, Pakistani Prime Minister Imran Khan said.
A senior Indian Air Force official welcomed the move on Thursday evening, but added that Islamabad was simply following international norms around prisoners of war.
"We have an Indian pilot. As a peace gesture we will release him tomorrow," Pakistan's Khan told a joint sitting of parliament in the capital Islamabad.
Khan also said he had unsuccessfully tried to make a telephone contact with his Indian counterpart Narendra Modi on Wednesday night.
"Yesterday, I tried to call Narendra Modi," Khan said. "I wanted to make it clear that we do not want any kind of escalation."
India welcomed Pakistan's decision to free the captured pilot, whose Mig-21 fighter was shot down during an aerial skirmish between the air forces of the two countries in the disputed region of Kashmir.
"We are extremely happy to have him back. We want to see him back," India's Air Vice Marshall RGK Kapoor told reporters in New Delhi.
"We only see it as a gesture which is in consonance with all Geneva conventions."
Human face of the conflict
Following Pakistani villagers and soldiers filming his capture and captivity on Wednesday in video clips that have since gone viral on social media, the pilot - identified by Islamabad as Wing Commander Abhinandan Varthaman - fast emerged as the human face of the dangerous flare-up between the arch enemies.
Varthaman and the Indian Air Force (IAF) have been at the heart of the crisis between India and Pakistan after the latter claimed to have shot down two Indian fighter jets in response to the bombing of alleged "terror" targets inside Pakistan on Tuesday morning.
Tensions have flared between India and Pakistan since a suicide car bombing by Pakistan-based armed group Jaish-e-Mohammed (JeM) in India-administered Kashmir killed at least 42 Indian paramilitary forces on February 14.
But the risk of an all-out armed conflict rose dramatically on Tuesday when India launched air raids on what it claimed was a JeM training camp near Jaba town in northern Pakistan.
As tensions rose between the nuclear-armed neighbours, the United States and China appealed for restraint.
Storm on social media
In a video posted on social media, the Indian pilot could be seen in ankle-deep stream of water, his face bloodied as he is assaulted by a group of men in disputed Kashmir.
In another video, the pilot is seen blindfolded and can be heard saying, "I've got hurt and I would request some water." He then reveals his name and rank before politely fending off questions from soldiers by saying: "I'm not supposed to tell you that."
In a third video, posted on Twitter by Pakistan's state broadcaster, PTV news, the pilot is shown relaxed while saying, "I would like to put this on record and I would not change my statement if I go back to my country. The officers of the Pakistan Army have looked after me very well. They are thorough gentlemen."
Pakistan army spokesman Major General Asif Ghafoor tweeted a photo of the pilot and said he was "being treated as per norms of military ethics". Pakistani tweeters said he was shown exemplary hospitality.
'A vulgar display'
However, in a statement released by its foreign ministry, India branded Pakistan's videos as a "vulgar display" of an injured airman, saying they violated international humanitarian laws and the Geneva Convention.
"Pakistan would be well advised to ensure that no harm comes to the Indian defence personnel in its custody. India also expects his immediate and safe return," read the statement.
The airman's treatment at the hands of Pakistani troops drew both condemnation and praise.
Following the release of a picture of the pilot, social media platforms such as Facebook, Twitter and WhatsApp were inundated with old videos and photos of him.
Many Indian users expressed their concern, hoping for Varthaman's return, with hashtags #BringHimHome and #AbhinandanMyHero being the top two trends on Indian Twitter on Wednesday evening.
Others went on social media to send their prayers to the family demanding his return. "True inspiration & model figure ... Huge respect," wrote a Twitter user.
Pakistanis on social media also called on the army and the government to treat Varthaman with respect and ensure his safe return back to his country.
India shares dossier on Kashmir attack
Meanwhile, India has handed over its files on the deadly February 14 bombing to Pakistan, Prime Minister Khan on Thursday said after a similar confirmation by his foreign minister earlier in the day.
"Today they [India] have sent a dossier on Pulwama," he said in parliament. "They should have given us the dossier first, and if we had not taken action, then they could have taken action."
In his address, Khan reiterated his call for de-escalation, a day after urging India to avoid any "miscalculation".
"I am saying to India: do not take it further than this. Because whatever you do, Pakistan will be forced to retaliate. And then two countries who have the weapons that the two of us, we should never even think of such a thing."
In a televised address on Wednesday, the Pakistani prime minister had said his country is ready to cooperate with New Delhi into the investigation of the February 14 suicide bombing, claimed by Pakistan-based armed group, JeM.
New Delhi accuses Islamabad of using armed groups as proxies to drive unrest in Kashmir and carry out "terror" attacks in India.
Pakistan has denied all allegations and has warned India against linking it to the latest attack in Pulwama.
Earlier on Thursday, Pakistan's foreign minister told local television channel Geo News that Khan was ready to speak with Indian Prime Minister Modi on ensuring peace in the subcontinent.
Modi has also been criticised by Indian opposition parties for politicising the India-Pakistan standoff ahead of India's general elections, due in April and May.
