About 10,000 Pakistani Islamists held a rally at the Wagah border with India on Sunday, denouncing peace moves between the nuclear-armed rivals without resolution of the dispute over Kashmir.

Muslim-majority Kashmir, a Himalayan region which India and Pakistan both claim but rule in part, has been the cause of two of three wars between the countries since independence from British rule in 1947.

The protestors oppose recent moves to improve trade relations, in particular Pakistan's decision to grant India the status of most favoured nation by the end of the year in a bid to expand economic cooperation.

"There should be no peace and trade with India," Hafiz Mohammad Saeed, who established the Lashkar-e-Taiba group blamed for the 2008 Mumbai attacks, told the rally.

"Anyone who will extend a hand of friendship with India without resolving (the) Kashmir dispute will be seen as a traitor," Saeed said.

Many of the Islamists at the border, some 25 kilometres (15 miles) from the eastern Pakistani city of Lahore, were carrying the black and white striped flags of the Defence of Pakistan coalition, which has vowed to block peace and free trade with India.

India suspended its peace process with Pakistan after the Mumbai attacks and talks only resumed in February last year. Both sides remain deadlocked over Kashmir but have made some progress on less contentious subjects such as trade.

The United States in April slapped a $10 million bounty on Saeed for information leading to his arrest and conviction. India also blames militants from Saeed's groups for terrorist attacks in its zone of Kashmir.

The disputed region has been racked by militancy since 1989 when an insurgency against Indian rule erupted. Around 47,000 people have died, though militant violence has fallen in recent years.