The extension comes at a time tension prevailed along the border between the two countries in Jammu and Kashmir.
The agreement to link the two countries by rail was signed in 2006 to facilitate people-to-people contact, officials said.
The agreement was set to expire in March 2018, but has now been extended to January 31, 2021.
The two sides currently have only two trans-border trains. The Samjhauta Express operates on the Delhi-Lahore route via the Attari-Wagah border crossing and carries both passengers and freight.
The Munabao-Khokhrapar link was destroyed during the 1965 war between the two countries. The service was revived after 41 years in February 2006.
"We are happy to extend the rail link. The train, Thar Express, is pre-booked till March 2018," a railway official told PTI.
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