Pakistan promised to free a captured Indian pilot on Friday as a "peace gesture" aimed at its nuclear arch-rival, but New Delhi insisted it would remain on "heightened" military alert for attacks.

Wing Commander Abhinandan Varthaman, who was shot down in an aerial engagement over the disputed region of Kashmir on Wednesday, had become the centrepiece of the latest conflict between the neighbours.

"As a peace gesture we are releasing the Indian pilot tomorrow," Prime Minister Imran Khan told the Pakistan parliament in the first sign of a potential thaw since Tuesday when Indian fighter jets launched a raid inside Pakistani territory.

Despite Khan's promise, Indian and Pakistani forces continued shelling each other through the day across the ceasefire line in divided Kashmir, AFP reporters said.

In India Khan's announcement was being seen as a diplomatic victory for New Delhi, with Indian leaders and top officials showing little sign of de-escalating the rivalry.

"We are fully prepared and in a heightened state of readiness to respond to any provocation from Pakistan," Major General Surendra Singh Mahal of the Indian army told a press conference.

"Our fight is against terrorism. While Pakistan continues its support to it, we are ready to target their terrorist camps and training areas," he added.

- 'Happy to have him back' -

Air Vice Marshall RGK Kapoor added that Pakistan's decision to free the pilot, though welcome, simply followed international regulations.

"We are extremely happy to have him back. We want to see him back," he told reporters, adding, "we only see it as a gesture which is in consonance with all Geneva conventions."

Media reports have said Varthaman could return to India on Friday through the Wagah crossing gate, famed for hosting daily rival ceremonies by Indian and Pakistani soldiers at sundown when they bring down their national flags.

With the pilot attaining hero status in India and the hashtag #WelcomeBackAbhi swiftly trending on social media, India's Prime Minister Modi called on his citizens to "stand as a wall" in the face of an enemy that "seeks to destabilise India".

The tit-for-tat cross border raids have alarmed world powers including China and the United States, who have urged restraint.

Pakistan has closed its airspace indefinitely, stranding thousands of passengers worldwide; and the army said Thursday its troops were also on high alert along the de facto Kashmir border, the Line of Control.

Pakistan has said it downed two Indian fighters this week, while India confirmed it had lost one plane and on Thursday reaffirmed its claim to have shot down a Pakistani F-16 jet.

Pakistan PM Khan warned his Indian counterpart Modi not to see his desire to de-escalate as "weakness".

"India must know that we will be forced to strongly retaliate against any Indian action in the future," he said.

- Pilot's 'mishap' -

US President Donald Trump voiced optimism earlier Thursday that the India-Pakistan tensions could soon be resolved.

"We have had some reasonably decent news... Hopefully that's going to be coming to an end," he told reporters in Hanoi after a summit with North Korean leader Kim Jong Un.

Indian government sources said they were unsure what Trump was referring to.

The confrontation erupted after a suicide bombing in Indian-held Kashmir killed 40 troops on February 14, in an attack claimed by the Pakistan-based Jaish-e-Mohammad militant group.

Twelve days later Indian warplanes launched a strike inside Pakistani territory and claimed to have hit a militant training camp.

An infuriated Islamabad denied major casualties or damage, but a day later launched its own incursion across the Line of Control which sparked the dogfight that ended in Varthaman's capture.

A viral video apparently taken soon after his plane was shot down purportedly showed Varthaman being dragged and beaten by a group of men as Pakistani soldiers intervened, shouting "Stop! Stop!"

Pakistani foreign ministry spokesman Mohammad Faisal told reporters Thursday that the pilot had "some mishap before our officers reached there because he was caught by the public".

But he stressed the pilot was now "with us, he is safe and in good condition".

A video released by the Pakistani military later showed Varthaman sipping tea, his face swollen and sporting bruises but otherwise collected and calm.

He thanked the "thorough gentlemen" who rescued him from the mob and complimented the tea as "fantastic". It was unclear if he had been coerced to speak.

Kashmir has been divided and disputed by India and Pakistan since 1947. The two countries have fought two of their three wars over the region.

Trump hopeful India-Pakistan crisis will be resolved
Hanoi (AFP) Feb 28, 2019 - US President Donald Trump was hopeful Thursday of a resolution to an ongoing crisis between nuclear-armed rivals India and Pakistan which has ignited fears of an all-out conflict in South Asia.

Trump, speaking at a press conference in Hanoi after a summit with North Korean leader Kim Jong Un, said he had had "reasonably attractive news from Pakistan and India".

The US has been "involved in trying to have them stop," he told reporters.

"We have some reasonably decent news... Hopefully that's going to be coming to an end," he added.

The comments were his first since India and Pakistan both claimed to have shot down each other's fighter planes after a rare aerial engagement in the skies over the disputed Himalayan region of Kashmir early Wednesday, with Pakistan capturing one Indian pilot.

The incident -- the latest in a dangerous sequence of events between the two countries -- sent tensions rocketing, as major world powers including China, the US and the UN urged restraint.

New Delhi said it lost one fighter jet and a pilot was missing in action, later confirming he was in Pakistani custody. India also downed a Pakistani jet, the foreign ministry said.

Pakistan claimed to have shot down two Indian jets and denied it lost any aircraft in the dogfight.

Islamabad said its incursion across the heavily militarised border was in response to Indian warplanes bombing Balakot, well inside its territory, on February 26.

That attack was the "jaw breaking" response Indian Prime Minister Narendra Modi had promised after militants staged a suicide bombing in Indian Kashmir on February 14, killing at least 40 paramilitaries.

New Delhi blamed the Pakistan-based Jaish-e-Mohammad for the attack, and hit what it called a training camp for the militants in its aerial raid 12 days later.

The crisis has seen the US thrust into the familiar position of trying to defuse tensions, but American officials are making no secret of faulting Islamabad.

US policymakers have grown exasperated with Pakistan for not doing more against Islamist extremists, and envision a broad, long-term alliance with an emerging India.

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India says doesn't want 'escalation' after Pakistan air strike
New Delhi (AFP) Feb 27, 2019
New Delhi sought to ease soaring tensions with an infuriated Islamabad Wednesday after carrying out an air strike on Pakistan's territory, as the US urged the nuclear-armed neighbours to "exercise restraint". Ties between the arch-rivals have been under intense strain after a February 14 suicide bombing in the disputed Himalayan region of Kashmir that killed 40 Indian troops. New Delhi had promised to act, and on Tuesday its warplanes flew into Pakistani airspace and struck what it said was a ca ... read more