Indian PM Manmohan Singh has said ties with Pakistan cannot improve until it "stops using its territory for anti-India activity".
In a speech marking Independence Day he described the killing of five Indian soldiers on 6 August, allegedly by Pakistani troops, as a dastardly act.
India accused Pakistani soldiers of launching the attack after crossing the disputed border in Kashmir.
Pakistan has denied any involvement.
"We have... strived for friendship with our neighbouring countries. However, for relations with Pakistan to improve, it is essential that they prevent the use of their territory and territory under their control for any anti-India activity," Mr Singh said in a televised speech on Thursday.
"Recently, there was a dastardly attack on our soldiers on the line of control [de facto border] with Pakistan. We will take all possible steps to prevent such incidents in the future," Mr Singh said.
Claimed by both countries, Kashmir has been a flashpoint for over 60 years.
In January, several deadly cross-border attacks plunged the neighbours into their worst crisis in relations in years.
The latest incident came as the two sides prepare for peace talks, the first since a new Pakistani government took office.
Mr Singh also said his government would launch a number of infrastructure projects, including eight new airports, two sea ports, new industrial corridors and railway projects in the coming months to boost a slowing economy.
He said he was also hopeful that a landmark bill to provide subsidised food to two-thirds of the population would be soon passed in the parliament.
Under the law, the government will provide 5kg of subsidised grain monthly to nearly 800 million poor people.
Critics say the plan is a political move to win votes and will drain India's finances. Supporters say it will help reduce poverty and hunger.