In the days following the shooting, Yousufzai became an international icon and world leaders pledged to support her campaign for girls' education. She is now recovering in a British hospital.
Speaking to reporters on Tuesday, Yasmin Ansari, a local, said that Malala was a role model and that today the Hindu Lord Ram who is known to be a protector against evil would defend Malala as well.
"Malala Yousfzai was shot at by Pakistan Taliban some days back. She was working for world peace and for rights of women. Today she is fighting for her life and so we organized this prayer for her long life. Lord Ram was a messenger of peace and I am sure he will protect Malala also," said Ansari.
On Friday (November 9), Pakistani President Asif Zardari added his signature to petitions signed by more than a million people urging Pakistan to pay stipends to families who put their girls in school in honour of Malala.
Tens of thousands of Britons have called on the government to nominate Malala Yousufzai for a Nobel Peace Prize for her work promoting girls' education.
Diwali is celebrated with great fervour and gaiety all over India as it marks the return of Hindu god Lord Ram to Ayodhya in northern India after he defeated Ravana, the powerful king of Lanka.
Legend says millions of lamps were lit when Lord Ram returned after 14 years of exile in forests and after he defeated Ravana.
Diwali is also celebrated in honour of Lakshmi, the Hindu goddess of wealth and prosperity. It is believed that goddess Lakshmi, signifying prosperity, showers her blessings upon those homes that are clean and well lit.