The agreement comes after South Asia's nuclear-armed neighbours accused each other this week of firing shots across the flashpoint border for the first time in 45 years, threatening a full-scale military conflict.
China and India have agreed to de-escalate renewed tensions on their contested Himalayan border and take steps to restore "peace and tranquillity" following a high-level diplomatic meeting in Moscow.
Chinese State Councillor Wang Yi and Indian Foreign Minister S. Jaishankar met in Moscow on Thursday and reached a five-point consensus, including agreements the current border situation is not in their interests and that troops from both sides should quickly disengage and ease tensions, the two countries said in a joint statement.
The consensus, struck on the sidelines of a Shanghai Cooperation Organisation meeting, came after a clash in the border area in the western Himalayas earlier this week.
Shares of defence-related firms fell in China early Friday after the news, with the CSI Nationa l Defense Industry Index down 1.2 percent and on track for its steepest weekly decline since October 12, 2018. Tongyu heavy Industry shares tumbled as much as 16.4 percent.
China and India accused each other of firing into the air during the confrontation, a violation of long-held protocol not to use firearms on the sensitive frontier.
Wang told Jaishankar during the meeting the "imperative is to immediately stop provocations such as firing and other dangerous actions that violate the commitments made by the two sides," China's foreign ministry said in a statement on Friday.
Wang also told Jaishankar all personnel and equipment that have trespassed at the border must be moved and that frontier troops on both sides "must quickly disengage" in order to de-escalate the situation.
The comments contrast with recent show of force by the Chinese military.
China's Global Times, an influential tabloid published by the official newspaper of China's ruling Communist Party, reported on Wednesday the People's Liberation Army (PLA) were moving soldiers, bombers and armoured vehicles into the border.
Chinese state media also recently reported armed jump drills by PLA paratroopers in Tibet.
The Global Times said in an editorial published late Thursday that any talks with India should be paired with "war readiness".
"The Chinese side must be fully prepared to take military action when diplomatic engagement fails, and its frontline troops must be able to respond to emergencies, and be ready to fight at any time," the newspaper said.
"India has an abnormal confidence in confronting China. It does not have enough strength. If India is kidnapped by extreme nationalist forces and keeps following its radical China policy, it will pay a heavy price."