Addressing the country's National Assembly, Sharif announced a four-member committee to lead the talks with the militant group, which has stepped up its deadly wave of attacks since its leader, Hakimullah Mehsud, was killed in a drone stroke last November, leaving dozens dead. Earlier peace talk offers have been spurned.
Sharif asked the militants, now led by Mullah Fazlullah, to end their violence and come to the negotiating table, adding his government will not allow the country to be held hostage by them, the state-run Associated Press of Pakistan reported.
Citing their recent attacks in Bannu, Peshawar and Hangu as well as attacks on anti-polio workers, minorities and religious scholars, Sharif said: "We are under obligation of our religion and the Constitution to safeguard the lives and properties of our citizens at all costs."
He said the country stands united with any decision to respond to terrorism with full force, APP reported.
"Since the other side has shown intent to negotiate, we also wish to give peace yet another chance," he said. "However the acts of terror must stop. Terrorism and talks cannot continue simultaneously," Sharif told the lawmakers.
The four-member panel for the dialogue with the Taliban will include Sharif's adviser on national affairs Irfan Siddique, retired Maj. Amir Shah, a former intelligence official, noted journalist Rahimullah Yousafzai and Rustam Shah Mohmand, former ambassador to Afghanistan, Dawn newspaper reported.
Sharif, agreeing with opposition demands, said the dialogue will be transparent and open. No date for the start of the talks was announced.
The prime minister said his government is doing all it can to stop the suspected U.S. drone strikes, but that such strikes cannot be used to justify terror attacks.
"Are the innocent children who fall prey to acts of terrorism, or the innocent civilians who die in such attacks responsible for conducting the drone strikes?" he asked, adding: "Murder of innocent people cannot be tolerated anymore," APP reported.
Dawn said Sharif's offer came on the same day when the Taliban claimed responsibility for the killing of three paramilitary soldiers in a bomb attack in violence-ravaged Karachi.
Speaking to Dawn from an undisclosed location, Shahidullah Shahid, spokesman for the Pakistani Taliban called Tehrik-i-Taliban, also said his group had convened a meeting to "assess the committee formed by the federal government for peace talks."
The Taliban's leader in Punjab province, however, told the BBC's Urdu service that he would take part in the talks and expressed trust in the negotiators named by the government.
The Sharif government has long favored peace talks, but has come under pressure with the recent wave of attacks. Dawn said there has speculation about a major military operation against militants.