Indian Prime Minister Manmohan Singh warned Saturday Pakistan knows one more Mumbai-style terror attack would be a "big setback" to the nuclear-armed neighbours' plans to step up their peace process.

Singh's statement came after he and his Pakistani counterpart Yousuf Raza Gilani said Thursday they expected to open a "new chapter" in talks between the arch rivals after they met at a regional summit in the Maldives.

Singh said India wanted to strengthen the hands of the civilian government in Pakistan and that he believed Gilani had "clearly understood" that "if there is one more barbarous Mumbai-like attack, that would be a big setback."

"In the desire for normalising relations, trade and terror-related issues, I think in Gilani that Pakistan has a prime minister who is ready to work with us," Singh added.

India and Pakistan have fought three wars since independence in 1947, two of them triggered by their territorial dispute over Muslim-majority Kashmir, which remains a major hurdle in any future comprehensive peace deal.

Ties soured badly after the attack on Mumbai in 2008, which New Delhi blamed on Pakistani militants and in which 166 people died.

Singh, speaking to Press Trust of India and other domestic news agencies on his flight home from the Maldives, added Pakistan's armed forces -- often accused of helping Islamist militants attack India -- were "on board" on the peace process.

Gilani had invited him to visit Pakistan, he said, but the "right moment" will only come when Pakistan takes "solid steps" against terrorism.

He added he had praised Gilani as a "man of peace".

"I come back (from the Maldives) with the expectation that the second round (of talks) with Pakistan will begin very shortly," said Singh, who is under pressure from the political opposition for "going soft on terror".

Singh said trade and economic relations were key areas where progress was possible.

Crucial to changing the nature of relations will be Pakistan's implementation of a pledge to grant India most favoured trading nation status, he said.

Earlier this month, Pakistan's cabinet said it would give most favoured nation (MFN) status to its neighbour, reciprocating India's move to grant MFN status to Pakistan in 1996.

MFN status for India will remove discriminatory tariffs that stand as barriers to exports between the South Asian neighbours.

Commerce secretaries of the two countries are due to hold a two-day meeting in New Delhi starting on Monday to map out their next move in improving trade relations.