The 1,750-mile pipeline would help meet the growing energy needs of India's booming economy and provide Pakistan with hundreds of millions of dollars in fees.
The United States, which is trying to pressure Iran over its nuclear program, has made its disapproval of the project clear to Pakistan and India. Washington opposes investments that benefit Iran, which it suspects of trying to build atomic weapons.
Pakistani and Indian oil ministry officials met in New Delhi and agreed to complete a framework of the agreement by April of next year, the Press Trust of India news agency quoted India's Petroleum Secretary S. C. Tripathi as saying.
The proposed $4 billion pipeline would transport natural gas from Iran to India through Pakistan by the end of the 2010, the report said.
The pipeline is one of a number of initiatives designed to improve relations between Indian and Pakistan, longtime rivals over the Himalayan region of Kashmir.
Iran proposed the pipeline in 1996, but the project never got off the ground mainly because of Indian concerns over its security in Pakistan.
India, whose economy has been growing at 6 percent annually for the past decade, imports more than 65 percent of its oil.