Gen. Aslam Beg told the BBC that Sheikh Rashid Ahmed ran the camp until it was closed in 1991.
"It came to my knowledge in 1990 that there was a militant training camp on Fateh Jang Road some 12 miles from Islamabad. I passed the information to the then Prime Minister Nawaz Sharif," the general said. He said the camp was closed on orders from the prime minister.
On Tuesday top Kashmiri separatist leader Yasin Malik said that Sheikh had offered support to militants in the 1980s. Sheikh admitted providing accommodation for militants at his farmhouse, but denied running a training camp.
The general said Pakistan's Foreign Ministry had had no knowledge of the camp, which he said had since been turned into a farmhouse.
An Indian government spokesman called on Pakistan to abide by its commitment "not to allow any territory within its control to be used to support terrorism in any manner."
The allegations are casting a shadow over Indian-Pakistani peace talks. India is concerned because the accused minister holds a prominent position in the Pakistani government.