Pakistan said the incident occurred on Monday night, when the country's navy "detected and blocked" an Indian navy submarine from entering its waters.
Pakistan's military released video footage purporting to show the submarine on the surface of water with a timestamp of 8:35 p.m. on Monday. CNN could not independently verify the authenticity of the video.
Pakistan's Navy Director General of Public Relations said in a statement that the submarine could have been "easily engaged and destroyed had it not been Pakistan's policy to exercise restraint in the face of Indian aggression and to give peace a chance to prevail."
The statement described the incident as the latest in a "series of proactive actions against Pakistan." India responded by describing Pakistan's claims as a false narrative being put out by Islamabad.
Indian government sources disputed the video's authenticity, telling CNN that their submarine would not have surfaced if it had been trying to enter Pakistani waters. The sources said it was part of a wider propaganda campaign by Pakistan to create hysteria.
Week of tensions over Kashmir
The spat comes a week after a series of military exchanges brought the two nuclear-armed neighbors to the brink of conflict, including a dogfight that saw an Indian pilot shot down and captured by Pakistan.
While the standoff over the contested Kashmir region has cooled following the release of the pilot, the situation remains "serious," Pakistan's ambassador to the US, Asad Majeed Khan, said Monday.
On Tuesday, Pakistan said it would go after the assets and bank accounts of militant groups within its borders and in Pakistani-controlled Kashmir, according to a statement from the Ministry of Foreign Affairs.
The move comes just weeks after a Pakistan-based militant group, Jaish-e-Mohammed (JeM), claimed responsibility for a suicide bombing in Pulwama in Indian-controlled Kashmir on February 14, which resulted in the deaths of 40 Indian troops.
The attack prompted India to launch airstrikes on what it said was a JeM terrorist training camp in Pakistan territory, a claim that Pakistan has denied.
The US is also looking into reports that Pakistan misused American-made F-16 jets during the ensuing aerial engagement with India, in a possible violation of the terms of use from the US.
Speaking at the US Institute of Peace in Washington on Monday, Ambassador Khan said: "I am not aware of request from the US side about the F-16."
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