They were due to arrive in Pakistan on 4 January for three Tests, five one-day games and a Twenty20 international but the Indian government stepped in.
Pakistan Cricket Board spokesman Salim Altaf conceded: "It was a decision neither in their nor in our hands."
Meanwhile, the PCB has invited Sri Lanka to tour in India's place.
This new tour would involve three Test matches, three one-day internationals and one Twenty20 game.
Altaf said: "We hope they will agree to it and come after 20 January, shortly after hosting Bangladesh."
India's tour had been in jeopardy since last month's attacks, which India has blamed on Pakistan-based militants.
Pakistan has denied involvement after the attacks left more than 170 dead.
It is the third major cricket tour to Pakistan this year to be cancelled on security grounds.
Australia pulled out of their scheduled visit in March, while the International Cricket Council also postponed the Champions Trophy one-day tournament in September.
As a result, Pakistan have played no Test cricket this year and just 21 one-day internationals, mostly against Bangladesh and Zimbabwe.
The Pakistan Cricket Board fears this latest decision could cost it £13m.
PCB's Altaf said: "If there is no India series we gain nothing from our new television deal and lose out on other sources of income as well."
The PCB recently signed a new television rights deal worth approximately £90m with the Dubai-based organisation Ten Sports, but it includes a clause which stipulates that if a series is cancelled, nothing will be paid.
Indian sports minister MS Gill made the final call on cancelling the tour, with the government's Ministry of External Affairs having already refused permission for a junior hockey team to travel to Pakistan.
"We received a communication from the government stating that in the present circumstances, it is not feasible to tour Pakistan," said Indian Cricket Board (BCCI) official Ratnakar Shetty.
It is a disappointment, but it does not come as a surprise
Former PCB chief Shahryar Khan
But Shetty has not ruled out the possibility of playing the games at a neutral venue, with the PCB having previously floated the idea of moving the fixtures to the United Arab Emirates.
"No decision has been made on playing Pakistan at a neutral venue," said Shetty.
Meanwhile, he denied that the decision could damage the next Cricket World Cup, which is meant to be jointly hosted by India, Pakistan, Sri Lanka and Bangladesh.
"It will not affect the 2011 World Cup as that is a different tournament," he said.
Shetty also believes that relations between the respective cricket boards would not be harmed and Altaf agrees.
He added: "We are still on normal terms with BCCI because it was a decision neither in their nor in our hands."
"They have also said that if the situation gets normal in the future it would send its team to Pakistan.
"We still maintain sport should not be mixed with politics.
"We believe cricket can help improve relations between the two nations."
Former PCB chief Shahryar Khan said he was not shocked by the Indian government's decision.
"It is a disappointment, but it does not come as a surprise," he said.
"We all hope that it can be rescheduled later.
"I know that the Pakistan Board is already making alternative arrangements."
It was to have been the fifth series between the two countries since 2004, when cricket ties resumed after a 15-year gap caused by
