Reacting to the development, Pakistan High Commissioner Abdul Basit said cultural exchanges are important elements of bilateral ties which his country "encourages".
The Pakistani singer was scheduled to perform on Friday.
"We do encourage artistes to visit both sides and perform. As far as Pakistan is concerned, our policy is very constructive, very positive. When Indian artistes go to Pakistan, they do not come across such opposition," Basit told reporters on the sidelines of an event.
Organisers of Ali's concert in Mumbai announced cancellation of the event after Shiv Sena threatened to disrupt it, warning that no artiste from Pakistan will be allowed to perform in the city till terror emanating from across the border is stopped.
"It (cultural exchange) is one of the most important elements. It should be encouraged," Basit said.
The decision to cancel the event was taken despite an assurance by Maharashtra Chief Minister Devendra Fadnavis that adequate protection would be provided to Ali.