Asif Zardari told a meeting of former senior civil servants in Islamabad, it was time to be honest about their deployment.
"Let us be truthful to ourselves and make a candid admission of the realities," he said. "The terrorists of today were the heroes of yesteryears until 9/11 occurred and they began to haunt us as well."
His comments amount to an admission that Pakistan trained Islamic terrorists to launch attacks on India as part of its long war over its claim on Kashmir.
It came as at least 40 people were killed in a suspected US missile strike in north-west Pakistan.
Three US drones are believed to have fired missiles at militants near Ladha in South Waziristan. It is the third strike in two days and follows strikes in which 19 reportedly died.
Mr Zardari first confirmed that many of the Islamic militants now waging war against his government were once "strategic assets" in an interview with the Daily Telegraph earlier this week.
"I don't think anybody in the establishment supports them any more. I think everybody has become more wise than this," he said and confirmed the military was now targeting those it had previously used as proxies in attacks on India.
Islamic militant groups like Lashkar-e-Taiba and Jaish-e-Mohammed, have long been regarded as Pakistan proxy forces by diplomats and intelligence services but Islamabad has, until now, always denied any links.
The LeT is believed to have been created to fight with the Afghan Mujahideen against the former Soviet-backed Najibullah regime in Kabul and to attack Indian forces in Jammu and Kashmir.
It is believed to have been responsible for the commando attack on Delhi's Red Fort in December in which two soldiers and a civilian were killed. It was involved with another Pakistan-backed terrorist group Jaish-e-Mohammed in the 2001 attack on the Indian parliament before it was banned by Islamabad in 2002.
Pakistan terrorists were also behind the 1999 hijacking of an Indian Airlines jet which forced the Indian government to release three jailed militants, including Masood Azhar, the founder of Jaish-e-Mohammed, and Omar Saeed Sheikh, who was later arrested for the murder of Daniel Pearl.
The Indian government believes links between Islamabad and these terrorist groups remain intact and prime minister Manmohan Singh has accused elements within Pakistan's security apparatus of aiding the Lashkar-e-Taiba's commando attack on Mumbai last November.