The $7.6 billion project is crucial for Pakistan to avert a growing energy crisis already causing severe electricity shortages in the country of about 170 million.
Pakistani Petroleum and Natural Resources Minister Naveed Qmar hailed the signing of the deal in Turkey on Tuesday as an "historic achievement." "It's a milestone toward meeting energy needs of the country," a Pakistani government statement quoted Qamar as saying.
The pipeline will connect Iran's South Fars gas field with Pakistan's southern Baluchistan and Sindh provinces.
Iran has the world's second-largest gas reserves after Russia. But sanctions by the West, political turmoil and construction delays have slowed its development as an exporter.
Under the deal, 750 million cubic feet of gas will be pumped to Pakistan daily from Iran by mid-2015.
Qamar said he hoped work on the project would be started soon so that gas supplies to Pakistan could start on time.
Dubbed the "peace pipeline," the project has been planned since the 1990s and originally would have extended from Pakistan to its old rival, India.
However, India has been reluctant to join the project given its long-running distrust of Pakistan, with which it has fought three wars since they achieved independence in 1947.
Under the deal signed on Tuesday, Pakistan is allowed to charge a transit fee if the proposed pipeline is eventually extended to India.
The United States has tried to discourage India and Pakistan from any deal with Iran because of Tehran's suspected ambitions to build nuclear weapons. Iran denies any such ambitions.
India has invested in civilian nuclear reactors to help fulfill its increasing energy demand. It also signed a landmark civilian nuclear deal with the United States in 2008.
Pakistan has long called for a similar deal from the United States but Washington has been unwilling to make an agreement with its ally, which is battling an Al-Qaeda-linked Islamist insurgency.
Pakistani President Asif Ali Zardari reiterated Pakistan's demand in talks with Director of US National Intelligence Dennis C. Blair on Tuesday.
"(Zardari) called upon the US to assist Pakistan in civilian nuclear technology to help the country overcome (the) energy crisis, on the one hand, and bridge the trust deficit between the two countries on the other," a government statement said.
