Pakistan is accusing India of showing "no flexibility" in last week's discussions between the two countries, which were meant to settle differences over the construction of Baglihar dam in the Indian-controlled portion of Kashmir.
The talks were held under a deal mediated by the World Bank in 1960 for sharing river water between the two countries.
Speaking to reporters in Islamabad, Foreign Ministry spokesman Masood Khan maintained the project violates the agreement because it will deprive Pakistani areas of their share of water. India dismisses these concerns, saying the dam will not disrupt the flow of water into Pakistani territory.
Mr. Khan says Pakistan has decided in principle to approach the World Bank to appoint neutral experts to settle the dispute. But he says a final decision has yet to be made. The Pakistani spokesman says his country wants to go back to the negotiating table, but only if India stops construction on the project.
"This is something that India can do," he said. "This is a minimal step. It is absolutely clear that there are differences between India and Pakistan. And therefore, until we find an amicable settlement of this dispute, India should stop work or suspend work."
India and Pakistan are involved in a wide-ranging peace dialogue to settle bilateral issues, including their dispute over the divided region of Kashmir. Mr. Khan says the lingering differences over the dam project could undermine efforts to build confidence between the two nations.
"It will have [an] indirect impact on the dialogue process, because both sides have been talking about a trust deficit and such an impasse of course widens that deficit."
The divided Kashmir region is at the center of tensions between India and Pakistan. The two rival nations have fought two of their three wars over Kashmir. But they have come a long way in patching up bilateral relations since going to the brink of another war over Kashmir in 2002.