He also said he had a dream of seeing Indian Kashmir free and hoped to see it happen during his lifetime.
"Kashmir is a flashpoint and can trigger a fourth war between the two nuclear powers at anytime," he was quoted as saying by the Dawn daily in his brief address to the budget session of the 'Azad Jammu and Kashmir (AJK) Council' in Pak-occupied Kashmir yesterday.
The press release issued by his office last night did not carry the above statement.
The statement had however quoted Sharif as saying that the Kashmir issue should be settled according to the aspirations of the people and the UN resolutions as peace in the region was not possible without it.
"The Prime Minister said that he had a dream of seeing held-Kashmir free from the Indian occupation and desired that this dream could turn into reality during his lifetime," the statement said.
About Indo-Pak relations, the Prime Minister categorically reiterated that it was India which indulged in the arms race, it said.
"We were drawn into arms race by India," he said.
"If we had a choice, we could have diverted these expenditures to the social sector uplift and eradication of poverty," he emphasised.
Sharif also expressed his satisfaction over the improvement of situation on the Line of Control (LoC).
Sharif also "expressed his dismay at the contradictory stance taken by the Indian government" in addressing the core issue of "occupied" Kashmir.
During his meeting with the leadership of the All Parties Hurryiat Conference (APHC) here after presiding over a meeting of AJK Council as its chairman, the Prime Minister said that it was his desire that the issue must be resolved at the earliest.
Underlining the historic aspects of the Kashmir issue, the Prime Minister said that it was a long standing issue, and must be settled in accordance with the UN resolutions.
"I have raised the issue with US President Barack Obama and he also agreed in principle that the issue should be resolved in accordance with the UN resolutions," he said.
The Prime Minister said that whatever he suggested for the resolution of the issue had sincerity and weight, adding, "You have already seen our commitment to the issue in past and it is our deep desire that the issue should be taken forward towards its resolution in accordance with the desires of the Kashmiri people."
"On the other hand, the Indian government's repeated declaration of terming held-Kashmir as its integral part despite UN resolutions on the subject, shows its lack of sincerity to resolve the matter," he added.
Sharif asked the Kashmiri leadership to offer their suggestions and proposals for expediting the resolution of this long-standing bone of contention between the two neighbouring countries.
He also urged the international community to play its due role in the settlement of Kashmir issue, the statement said.