The two countries have also decided to form a "Special Task Force or Joint Commission" before Prime Minister Sharif embarks on a visit to Iran on May 11.
The decisions were taken during the visit of Iranian Interior Minister Abdolreza Rahmani Fazli who met with a number of officials here and Prime Minister Sharif.
Addressing a joint press conference here with Fazli, Pakistan's Interior Minister Chaudhry Nisar Ali Khan said strong Pakistan-Iran relations are need of the hour and they should also reflect people's sentiments for each other.
"We have discussed the possibility and in principle agreed to set up a hotline between" the border guarding forces of the two countries, Kahn said adding that a hotline will also be established between the Director Generals of Military Operations.
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He said Pakistan has "absolutely no problem with Iran."
The Minister said he wants Pakistan-Iran relations to be a model of friendship for all countries in the world.
"Sky is the limit for cooperation between the two sides," Khan said.
He said business relations between the two countries will be strengthened to the benefit of the two people.
The Iranian Minister expressed similar sentiments.
Fazli said both sides also discussed the issue of specific operations on each side besides the possibility of "joint operations".
Khan quickly chipped in and said the information will be shared and if there is a need, Pakistani forces will undertake operations on its soil and Iranian forces on their soil.
The issue of the recent kidnapping of five Iranian border guards of which four have been recovered also came up.