Calling the recent sequence of events along the LoC as "disputed", The News International pointed to the varying versions emanating from New Delhi and Islamabad.
Pakistan has accused Indian troops of killing one of its soldiers. India charged Pakistani troops with sneaking into Jammu and Kashmir and killing and mutilating two Indian soldiers.
"Serious as this incident is we cannot, must not, allow it to propel us in the direction of further confrontation," it said in an editorial titled "Line of Fire".
"The exact sequence of events around the incident in which one of our soldiers lost his life Sunday is, as ever, disputed.
"They (India) say that our (Pakistani) troops opened fire entirely unprovoked in the north Uri sector of Kashmir and that the Indian troops responded and forced our troops to cease fire," it said.
The daily referred to the death of two Indian soldiers in Sona Gali in Poonch district.
It said Sunday's incident was the "most serious incident of recent times" since a ceasefire took effect along the LoC from November 2003.
"There have been numerous violations of the ceasefire, and each side accuses the other of failing to honour it and the entire border region remains highly volatile despite a thaw in relations over the last year," the editorial said.
"Incidents such as this have the potential to put relations between the two countries back in the freezer unless they are handled with the utmost delicacy."
The daily said the LoC was a "flashpoint along its entire length and has the capacity to derail the efforts of those with peaceful intent."
"It is not for us to adjudicate one way or another, but it is for us to urge moderation and restraint by all sides," the daily said.
It said that "neither nation needs or wants another war".