The South Asian neighbours said they wanted to "promote a stable environment of peace and security."
The hotline will link the top civil servants in their foreign ministries, said a joint statement at the end of the two countries' first talks on nuclear risks since the 1998 atomic tests.
"A dedicated and secure hotline would be established between the two foreign secretaries, through their respective foreign offices, to prevent misunderstandings and reduce risks relevant to nuclear issues," it said.
It said an existing hotline between senior military commanders, who have conversations, scheduled once a week, would also be "upgraded, dedicated and secured".
Both sides agreed to report the progress of the talks to the respective foreign secretaries who would meet on June 27 and 28.
Addressing a press conference here at Pakistan High Commission, the spokesman and Director-General (UN), Ministry of Foreign Affairs Masood Khan said that both countries would work towards concluding an agreement, with technical parameters, on pre-notification of flight testing of missiles, a draft of which was handed over by the Indian side.
The spokesman, flanked by Deputy High Commissioner Munawar Saeed and Minister (Press) Kamran Ali Khan, told the newsmen that both sides had agreed to establish a dedicated and secure hotline between the two Foreign Secretaries, through their respective Foreign Offices, to prevent misunderstandings and reduce risks relevant to nuclear issues.
The existing hotline between the DGMOs would be upgraded, dedicated and secured, he said, adding that the two countries agreed to call for regular working-level meetings, to be held among all nuclear powers, to discuss issues of common concern.
Masood, who is also member of Pakistan's delegation, read out the seven-point Joint Statement issued at the final round of parleys held between the two countries. Pakistan's delegation was led by Tariq Osman Hyder, Additional Secretary, Ministry of Foreign Affairs, while Indian side was led by Sheel Kant Sharia, Additional Secretary, External Affairs Ministry.
On the peace process between the two countries, Masood said: "We are on track, and we are on schedule. After the talks on Nuke CBMs, the Foreign Secretaries of the two countries would meet on June 27 and 28 and discuss the issues on Security and Kashmir.
"Then we expect talks at appropriate level on all other items of the agenda and this process should mature and culminate in meetings between the Foreign Ministers of India and Pakistan in August this year."
He said: "There is a progress; there has been understanding, movement towards dialogue and confidence-building and constructive, and now consistent engagements between the two sides."
In response to a query about the meeting between the Foreign Ministers of the two countries in August, Pakistan Foreign Office spokesman said, "This is a concrete proposal and part of the calendar of activities, agreed at the meeting between the Foreign Secretaries of the two countries in February this year in Islamabad."
Further unveiling the future engagements between the Foreign Ministers of the two countries, he said that they would be meeting in China on Monday.
"Then we hope when we have Saarc Ministerial Meeting in Islamabad, Natwar Singh along with other Saarc Foreign Ministers would be in Islamabad and we will have meeting between the Foreign Ministers of the two countries."
Masood Khan said: "As far as our bilateral dialogue calendar is concerned, it would culminate in August this year."
In reply to another question, he said that broad agreement between President Pervez Musharraf and former Prime Minister Atal Bihari Vajpayee was reached in January this year and concrete shape to the agreement was given at the meeting between the Foreign Secretaries of the two countries on February 18 in Islamabad and they finalised a calendar of activities. Because of the January meeting and later meeting between Foreign Secretaries in February, he said, "we did make process of composite dialogue predictable and have calendar of activities and meetings and we are pursuing that. So, this is progress; the two-track confidence building and dialogue "are proceeding and we are pressing ahead with them".
Recalling that when there was political transition in India, there was some degree of uncertainty, but that has been removed by the assurances and statements given by the Indian government, he said.
About discussion on proposal for 'Common Nuclear Doctrine', floated by India, Masood said that there was a general exchange of views on all issues.
The leader of Pakistan's delegation, Tariq Osman Hyder, had called on Natwar Singh, External Affairs Minister, and "all dimensions were covered and all issues discussed, but there was no specific focus on this proposal," the spokesman said.
In reply to another question whether the matter regarding cap on the number of missiles and warheads figured at the talks, he said, "yes, in a general sense, but we are moving step by step. It is an incremental approach."
The area being focused by both sides was implementation of whatever has been agreed. "This is the spirit," he added
About the Indian Draft Agreement spelling out technical parameters on pre-notification of flight testing of missiles handed over to Pakistan on Friday, Masood Khan said that under the MoU of 1999, the two sides had agreed to notify each other on test-firing of ballistic missiles. Both sides were informing each other in that regard. "But, we have to formalise this arrangement. That is why both sides are keen to finalise an agreement. This is in pursuit of what has been done in Lahore," he said, adding that the Pakistan side was looking at the text of detailed Indian draft and preliminary exchange of views have taken place.
Masood said that India and Pakistan would hold expert level talks on Monday to sort out differences on Baghliar hydropower project, being built on Chenab river in Indian Occupied Kashmir. There are some differences. Pakistan has its own position and India has its own position. "We have been talking about it for quite some time without reaching any conclusion," he said, adding that recently India had agreed to have technical level talks and upgrade them to the Secretary level. "This is a significant movement," he said.
According to the statement, released at the end of final round of talks on Nuke CBMs, both countries would continue bilateral discussions and hold further meetings to work towards the implementation of the Lahore Memorandum of Understanding of 1999.
Each side reaffirmed its unilateral moratorium on conducting further nuclear test unless, in exercise of national sovereignty, it decides that extraordinary events have jeopardised its supreme interests, said the statement.
The Joint Statement said that both countries would continue to engage in bilateral consultations on security and non-proliferation issues within the context of negotiations on these issues in multilateral fora.
Both sides are conscious of the need to promote a stable environment of peace and security between the two countries, said the statement, recognising that nuclear capabilities of each other, which are based on their national security imperatives, constitute factor for stability.
Both sides are committed to national measures to reduce the risks of accidental or unauthorised use of nuclear weapons under their respective controls and to adopt bilateral notification measures and mechanisms to prevent misunderstandings and misinterpretations and are conscious of their obligation to their peoples and the international community, added the statement.