New Delhi - India and Pakistan have agreed to start bilateral trade between parts of Kashmir they separately administer by as early as next month, officials and news reports said Tuesday.

Officials from the countries who met in New Delhi on Monday finalized the "modalities" for starting the trade, a statement from India's External Affairs Ministry said.

The agreement on trade across the heavily militarized Line of Control which serves as de-facto border between Indian and Pakistani administered zones comes three years after talks began on the matter.

Government sources told the Indian Express daily that a final decision will be taken at an upcoming meeting between Prime Minister Manmohan Singh and Pakistan President Asif Ali Zardari on the sidelines of the United Nations General Assembly.

"We have finalized the modalities. We will submit it to our principals, our bosses. Hopefully, it will work out," Pakistan's Additional Secretary in Foreign Ministry Aizaz Ahmed Choudhary was quoted as saying by the Times of India newspaper.

The two sides intend to start trade between Srinagar and Muzaffarabad - the capitals of the Indian and Pakistani parts of Kashmir - and Poonch and Rawalkot in the Himalayan region.

Cross-border trade between the two countries, which have fought two wars over Kashmir, was launched in October last year. That allowed movement of trucks in the Punjab region for the first time since their 1947 independence from Britain.

But large volumes of goods are still ferried hundreds of kilometres on a shipping route via Dubai.

Both sides described the Kashmir trade as a major confidence- building measure in their four-year-old peace process.

The peace dialogue had lost momentum after India accused the Pakistani spy agency the Inter-Services Intelligence of aiding a militant attack on its mission in Kabul in July that claimed over 50 lives. (dpa)