Meanwhile, Islamabad has removed Muhammad Ahmed Ludhianvi, head of the sectarian Ahl e Sunnat Wal Jamaat (ASWJ) group, from its terror watchlist.
Pakistan has been placed on a global terror financing watchlist, its foreign office said on Thursday, in a setback to the country's image ahead of a general election and as Islamabad touts dramatic improvements in security.
Members of the Financial Action Task Force (FATF), an anti money-laundering watchdog based in Paris, voted earlier this year to place Pakistan on the list of countries that are not doing enough to combat terror financing.
It was given three months to make enough changes to avoid the listing.
But on Thursday spokesperson for the country's Ministry of Foreign Affairs Dr Mohammad Faisal told reporters at a weekly briefing that the country has been grey-listed by FATF.
"Now after negotiation of an action plan, Pakistan will enforce that action plan, will implement it while remaining in the grey list," he said.
"We have conveyed our concerns to them and they have told us theirs."
On the day FATF puts us on grey list our first step to win back confidence from international community is take off the ban on the biggest sectarian hate mongers of Pakistan Sippah E Sahaba. The world isnt blind. We cant close our eyes and pretend all is fine.— M. Jibran Nasir (@MJibranNasir) June 28, 2018
The decision, which has not yet been announced by FATF, came as Islamabad removed Muhammad Ahmed Ludhianvi, the head of the Ahl e Sunnat Wal Jamaat (ASWJ) sectarian group, from its terror watchlist.
The ASWJ is a Sunni group linked to violence against Pakistan's minority Shia Muslims. The group was formed by members of the banned organisation Sipah-e-Sahaba Pakistan (SSP), which had repeatedly said it wanted to expel Shias from Pakistan.
The SSP was banned in 2001 under US pressure. Another of the group’s offshoots, Lashkar eJhangvi, claims to have carried out hundreds of killings, including some attacks jointly claimed by the Daesh terrorist group.
Many members of the ASWJ have also been killed in targeted attacks during the past few years.
Banned sectarian outfit Sipah-e-Sahaba/#ASWJ stages conference in Pishin, Balochistan where Abdul Rafay Shah Bukhari says voting for Muttahida Majlis-e-Amal is 'Haram' (because there's a Shia party in the alliance too). Why has proscribed ASWJ been allowed to contest elections? pic.twitter.com/llGeOdChzy— Bilal Farooqi (@bilalfqi) June 25, 2018
Faisal minimised the impact of FATF's decision, saying Pakistan has been on the list before. Pakistan was previously on the list from 2012 until 2015.
The original vote by FATF in February came as a bitter blow after Pakistan lost the support of allies China, which has invested billions in the country's infrastructure but is itself a victim of militancy, and Saudi Arabia.
Pakistan has seen a dramatic improvement in security in recent years, but analysts have long warned that the country is not getting to the root causes of extremism.
Two diplomatic sources in Islamabad said in February that Pakistan was targeted over its lack of action against Hafiz Saeed, the alleged mastermind of the 2008 Mumbai attacks, and his charity Jamaat ud Dawa (JuD).
The JuD is accused of being a front for the Lashkar e Taiba (LeT), the militant group blamed for the Mumbai attacks, which killed 166 people and brought Islamabad and New Delhi to the brink of war.
The LeT was placed on Pakistan's list of banned organisations in 2002.
Saeed, who operates freely in Pakistan and whose group is openly supporting several candidates in the July 25 election, has denied involvement. He was released by the country's courts over lack of evidence, after being held under house arrest for almost eleven months in 2017.
JuD and its sister organisation, the Falah i Insaniat Foundation (FIF), maintain an extensive network which includes 300 seminaries and schools, hospitals, a publishing house and ambulance services.
The charity organisations have garnered support from locals over their relief activities in Pakistan's remote areas especially at times when natural calamities like earthquakes and floods have hit the country.
The United Nations and United States accuse the JuD and FIF of exploiting disasters to raise volunteers and funds for militants.
The JuD publicly disavows militancy and its members say they are unjustly accused.
“This is propaganda. The UN put sanctions on Jamaat ud Dawa but we were never told what terrorism we do, and neither has anyone ever proven any allegation of terrorism against us,” said Abdur Rauf, head of JuD’s humanitarian relief operations.
Rauf was designated a “global terrorist” by the United States in 2010.
FATF is an inter-governmental body established in 1989 to help combat money-laundering and financing for extremists.