The mob stormed Joseph Colony in the capital of Punjab province and vandalised and burnt the homes of Christians.
A large contingent of policemen deployed in the area did nothing to stop them, witnesses and local residents said.
No one from the Christian community was hurt, though several policemen were injured when the mob lobbed stones at them.
The mob pulled furniture, household goods and utensils out of the homes and smashed and burnt them in the streets.
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The mob was led by one Shafiq Ahmed, who claimed he was looking for a Christian named Savan Masih as he had allegedly committed blasphemy by insulting the Prophet Mohammed.
Though the mob could not trace Masih, some men found his 65-year-old father Chaman Masih and assaulted him. They then burnt Masih's home.
Late last evening, the mob dispersed after a police contingent was posted in the area and officials said they had registered an FIR against Masih under the blasphemy law.
Footage on television showed houses and cars on fire. Smoke billowed out of the ruins of several houses as members of the mob stood watching on the streets.
The mob dispersed late this afternoon after the cleric of a nearby mosque assured them that action would be taken against the alleged blasphemer.