Pakistan to appeal bail for man accused of masterminding Mumbai attack

(Reuters) - Pakistan plans to appeal against a court decision to grant bail to a man accused of masterminding 2008 attacks in India's financial capital that killed 166 people, prosecutors said on Friday.

The decision to grant bail to Zaki-ur-Rehman Lakhvi appeared to blindside the Pakistani government, drew quick condemnation from India and is likely to hinder attempts to patch up ties between the nuclear-armed neighbours.

"We are going to challenge the bail order of Lakhvi," government prosecutor Chaudhry Azhar told Reuters. "We will go to Islamabad High Court on Monday to file the application."

Lakhvi would not be able to leave the prison until then, he said, as he was being held under a law that allows short detentions without charge, in the interest of keeping order.

The court ruling came as Pakistan was struggling to respond to its biggest ever militant attack. Taliban gunmen killed 132 school children and nine members of staff in the northwestern city of Peshawar on Tuesday.

The Pakistani Taliban said the attack was revenge for a military offensive against them. The Taliban are fighting to overthrow the government and install a strict Islamic state.

The Indian government condemned the school attack. But some Pakistanis, including former president Pervez Musharraf, have publicly hinted they believe Indian intelligence was behind it.

Relations between the two nuclear armed neighbours have been rocky ever since independence from Britain in 1947. They have fought three wars, two over the disputed territory of Kashmir.

The 2008 attacks, when gunmen rampaged through Mumbai for three days, sent relations into deep freeze. India blamed Pakistan-based militant group Lashkar-e-Taiba for the attack and handed over intercepts to use as evidence in the Lakhvi case.

Lakhvi was arrested in 2009 after the sole surviving gunman named him as the mastermind behind the Mumbai attacks.

Since Pakistani Prime Minister Nawaz Sharif was elected last year, he has been trying to repair relations with India, which he sees as vital to kickstarting Pakistan's sluggisheconomy.

But earlier this year India elected Narendra Modi, a hawkish nationalist whose party has struggled to shake off accusations that it favours the country's majority Hindus at the expense of religious minorities.