Pakistan has ordered a review of all co-operation with the US and Nato after the alliance struck a Pakistani army checkpoint, killing at least 24 people.
A committee chaired by Prime Minister Yousuf Raza Gilani also decided to cut supply lines to Nato in Afghanistan.
A Nato spokesman admitted it was "highly likely" that Nato aircraft were behind the strike at the Afghan border.
The US has stressed the importance of its relationship and said it fully backed Nato's plan to investigate.
Nato's Brig Gen Carsten Jacobson sent condolences to Pakistan and said the alliance was investigating how the incident occurred.
Mr Gilani called the attack a "grave infringement of Pakistan's sovereignty".
The BBC's Orla Guerin in Islamabad says this could be a very costly mistake by Nato, which relies heavily on the route through Pakistan to supply its personnel involved in the war in Afghanistan.
A meeting of the cabinet's defence committee, convened by Mr Gilani, decided the government would "revisit and undertake a complete review of all programmes, activities and co-operative arrangements with US/Nato/Isaf, including diplomatic, political, military and intelligence".
It "decided to close with immediate effect Nato/Isaf logistics supply lines", according to a statement issued by Mr Gilani's office.
Reports appeared to confirm that Nato traffic was not being allowed through Pakistan's two border crossings with Afghanistan, at Torkham and Chaman.
The committee also said the United States would be asked to vacate, within 15 days, the Shamsi air base, which the US has used to launch drones.
However, our correspondent notes that Pakistan has made a similar demand before and the base may already be empty.
Pakistan's government also summoned the US ambassador.
Late on Saturday, US Secretary of Defense Leon Panetta and Secretary of State Hillary Clinton released a statement saying they offered their "deepest condolences for the loss of life and support fully Nato's intention to investigate immediately".
They stressed the "importance of the US-Pakistani partnership, which serves the mutual interests of our people" and pledged to remain in close contact with their Pakistani counterparts, the AFP news agency quoted the statement as saying.
The night-time attack took place at the Salala checkpoint, about 1.5 miles (2.5 km) from the Afghan border, at around 02:00 on Saturday morning local time (21:00 GMT Friday).
The Pakistani army said helicopters and fighter aircraft hit two border posts, killing 24 people and leaving 13 injured. Local officials said the two posts were about 300m apart on a mountain top.
Pakistani officials said there had been no militant activity in the area, and most of the Pakistani soldiers were asleep. They also said Nato had the grid references of the posts and therefore should not have fired.
Gen Jacobson said a combined force of Afghan and Nato troops were in the area when "a tactical situation developed on the ground", though he gave no more details.
He said close air support was called in, and "we're aware it's highly likely this caused casualties".
Military sources told the BBC's Quentin Sommerville in Paktika province in Afghanistan that a US-Afghan special forces mission had been in the area, where they believed a Taliban training camp was operating.
They said the mission came under fire from a position within Pakistan, and they received permission from the headquarters of Nato's Isaf mission to fire back.
In a statement, Isaf commander Gen John R Allen said the incident "has my highest personal attention and my commitment to thoroughly investigate it to determine the facts".
"My most sincere and personal heartfelt condolences go out to the families and loved ones of any members of Pakistan Security Forces who may have been killed or injured."
The incident looks set to deal a fresh blow to US-Pakistan relations, which had only just begun to recover following a unilateral US raid that killed Osama Bin Laden in Pakistan in May.
Pakistani troops are involved in fighting the Taliban in the crucial border region area. Hundreds of militants have been resisting attempts by the security forces to clear them from southern and south-eastern parts of the district.
In October, Pakistan's army chief Ashfaq Kayani warned the US against taking unilateral action in nearby North Waziristan.
Washington has for many years urged Islamabad to deal with militants in the area.