Pakistan appears to be building a new nuclear reactor to produce weapons-grade plutonium at Khushab in Punjab province, an American watchdog group has said citing satellite imagery.

Satellite images taken on June 3 indicate that Pakistan appears to be building a third plutonium production reactor at the Khushab nuclear site, 160 km southwest of Islamabad, even as the second heavy water reactor, which it began building between 2000 and 2002, is still under construction, Institute for Science and International Security said.

"The third reactor appears to be a replica of the second heavy water reactor and is located a few hundred metres to the north, though construction is progressing much more quickly than the second," former UN inspector David Albright and Paul Brannan wrote in a report.

The ISIS said it has reported on January 18 the resumption of construction of what appears to be a plutonium separation facility at Chashma, some 80 km west of Khushab.

"The expanded construction at Khushab, and apparent resumption of activity at the Chashma plutonium separation plant, all occurring within the last six years, imply that the Pakistan government has made a decision to increase significantly its production of plutonium for nuclear weapons," the ISIS said.

The report said Pakistan may have decided to produce more plutonium for lighter warheads for cruise missiles, or to upgrade weapons aimed at Indian cities.