DUH!!
Karachi Agreement is relevant to Part I of the UN resolution of 13th August, 1948. Part I is called 'Truce Agreement' not Part II which deals with demilitarization.
"The cease-fire line is a complement of the suspension of hostilities, which falls within the provisions of Part I of the Resolution of 13 August, 1948, and can be considered separately from the questions relating to Part II of the same Resolution." Karachi Agreement, Para A/3; Pg 2
This Karachi Agreement established Cease Fire Line (CFL) which both the countries undertook not to violate (and which Pakistan dutifully violated 1965 rendering this whole UN resolution void). But in order to hold plebiscite in Kashmir, Pakistan had to withdraw, completely and unconditionally, handing over the administration to the 'Local Government'.
Part I, which is the 'Truce Agreement', is seperate from Part II.