Musharraf's remarks came days after he declared himself the "biggest supporter" of the outlawed Lashkar-e-Taiba (LeT).
"So far, there has be no talks with them but if they want to be part of the alliance, I would welcome them," Musharraf, currently living in self-exile in Dubai, told Aaj News while responding to a question about forming an alliance with Jammat-ud-Dawah chief Saeed.
However, several parties dissociated themselves from Musharrafs Awami Ittehad alliance.
"No one has made as many sacrifices in Kashmir as the LeT, yet the international community called its activities terrorism, but ignored the political situation in Kashmir," he said.
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"No matter what other people say, what is happening in Kashmir should not be termed as terrorism. At least we should not call it that. These organisations are NGOs working for the welfare of Pakistan. These are not in favour of Taliban and Al Qaeda, why are we branding them as 'terror groups'?"
Saeed last week unveiled his political ambitions by formally announcing that his JuD will contest the general elections in Pakistan in 2018 under the banner of the Milli Muslim League, which is yet to be registered with the Election Commission.
The banned JuD is believed to be the front organisation for the LeT which carried out the 2008 Mumbai terror attack in which 166 people were killed.
The JuD chief, who carries a bounty of USD 10 million announced by the US for his role in terror activities, walked free on November 24 after the Pakistan government decided against detaining him further in any other case. He was under detention since January this year.
The JuD was declared as a foreign terrorist organisation by the US in June 2014.