His attack on the government at a Congress rally in Bengaluru comes a day after PM Modi, in his Independence Day address, reached out to Kashmiris, saying abuses and bullets would not resolve their problems but embracing them would.
"He (Modi) has created an environment in Jammu and Kashmir of hatred and anger, and the only people who benefit from violence and hatred are the Pakistanis," he said.
Claiming that he worked on the Jammu and Kashmir issue with Manmohan Singh, who was the prime minister, and leaders like P Chidambaram and Jairam Ramesh silently without any "drama or tamasha", he said their effort of 10 years was "destroyed by Modi in one month".
Mr Gandhi said that the Congress-led coalition in 2004 inherited a government from Atal Bihari Vajpayee under which Kashmir was "burning", and one of the biggest successes of the Manmohan Singh government was creating an environment of peace in J&K.
"We worked for 10 years to bring peace in Kashmir. We did panchayat elections, we did work on employment, we connected thousands of women there to banks. The reason was we wanted peace and harmony in Kashmir," he said.
"We wanted to embrace the people of Jammu and Kashmir and we wanted them to embrace us. We wanted peace there, also because when there is peace, Pakistan can do nothing in Jammu and Kashmir... The space for Pakistan to do mischief there closes," he said.
Stressing that a peaceful Jammu and Kashmir was a "worst thing" for Pakistan, Mr Gandhi said what the UPA government did for ten years was "destroyed in one month by Modi".
"I'm telling you this because Mr Narendra Modi's policy has created a space in Jammu and Kashmir for Pakistanis to misbehave," he added.
Hitting out at the Modi government's foreign policy, Mr Gandhi accused the prime minister of alienating India's neighbours and also Russia.
"Narendra Modi has not stopped there. When we were in the government, all neighbouring countries, other than Pakistan and China, were favourable to us... One by one Narendra Modi has alienated them," he alleged.
"For the first time in our history, Russia is selling weapons to Pakistan," he said.