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Mr Mukherjee says India is not ruling out any options
Militant groups in Pakistan are "the greatest danger to peace and security in the entire world", India's foreign minister has said.
Pranab Mukherjee accused Islamabad of "denial" and "shifting the blame" for last month's deadly Mumbai attacks.
He said the international community had not done enough to exert pressure on Pakistan, which denies any involvement.
Mr Mukherjee was addressing Indian envoys from across the world who have gathered to discuss the Mumbai attacks.
Gunmen stormed two Mumbai (Bombay) hotels last month and also attacked a railway station and a popular restaurant. The attacks left 173 people dead.
Mr Mukherjee's statement is the latest in a series of strongly worded diplomatic warnings from India.
The BBC's Chris Morris in Delhi says the Indian government is clearly determined to maintain pressure on Islamabad to act.
On Monday, the Pakistani air force conducted non-routine exercises as part of what it called "enhanced vigilance".
'Utmost restraint'
"The terrorist infrastructure in Pakistan is the greatest terrorist danger to peace and security of the entire civilised world," Mr Mukherjee told the gathering in Delhi of Indian ambassadors and heads of 120 missions from across the world.
He accused Pakistan of "resorting to a policy of denial and to seek to deflect and shift the blame and responsibility".
Ultimately it is we who have to deal with this problem
Pranab Mukherjee
Tears as Mumbai hotels reopen
Mr Mukherjee said: "We expect the civilian government of Pakistan to take effective steps to deal with elements within Pakistan who still continue the use of terrorism as an instrument of state policy.
"We have so far acted with utmost restraint and are hopeful that international community will use its influence to urge the Pakistani government to take effective action."
But Mr Mukherjee said that although there had been "some effort so far by the international community... this is not enough. Much more needs to be done."
He added: "While we continue to persuade the international community and Pakistan we are also clear that ultimately it is we who have to deal with this problem. We will take all measures necessary as we deem fit to deal with this situation."
This is the first time that the 120 heads of Indian missions have met, with diplomatic strategy in the wake of the Mumbai attacks the key issue.
On Sunday, Mr Mukherjee told Pakistan to co-operate by handing over the wanted "fugitives who have taken shelter in that country" and "keep its word on not allowing its territory to be used by terrorists".
India has blamed Pakistan-based militant group Lashkar-e-Taiba (LeT) for the attacks, which began on 26 November and lasted three days.
LeT and the Pakistani government have denied any involvement.
On Monday fighter jets flew low over three major cities in Pakistan amid the heightened tension.
Separately, the chairman of the US Joint Chiefs of Staff, Adm Mike Mullen, is in Pakistan for his second visit since the Mumbai attacks for regional talks.
Earlier, Pakistan's President Asif Ali Zardari said claims that the sole surviving attacker had been identified by his own father as coming from Pakistan had not been proven.
The man has been named as Mohammed Ajmal Amir Qasab and he is in Indian police custody.
The two hotels caught up in the attacks, the Trident-Oberoi and Taj Mahal Palace, reopened for business on Sunday.
BBC NEWS | South Asia | Pakistan militants 'world threat'
