The comments, made at a meeting of Pakistani military chiefs, come as the South Asian neighbours finalise dates for a meeting between Musharraf and Indian Prime Minister Manmohan Singh later this year.

India and Pakistan have fought three wars since independence six decades ago, but in January 2004 they embarked on a peace process focused on their dispute over the Himalayan territory of Kashmir.

"Relations between Pakistan and India have never been better," a statement quoted General Musharraf as telling a conference of commanders in the garrison city of Rawalpindi, near Islamabad, on Monday.

"There is positive movement in resolution of issues of conflict, especially Kashmir," Musharraf said, adding however that Pakistan's national interests "will not be lost sight of."

Military ruler Musharraf added that there had been an increase in economic activity with India and that "confidence-building measures" had boosted cultural and sporting ties.