The locomotive burst into flames near Mughalpura station in the morning due to an apparent short circuit in a battery, railway police official Muhammad Atique said.
The driver immediately separated the engine from the train and no damage was done, he said.
All 100 passengers on the train were safe and unharmed, officials said.
Another official had earlier mistakenly said there were over 300 passengers in the train.
Railway police officials said they had found no evidence of sabotage.
Pakistan Railways has set up a three-member committee to ascertain the cause of the fire in the engine.
“Though the apparent cause appears to be a short circuit, the committee will thoroughly probe the matter,” railway spokesman Zubair Gori said.
“The fire occurred shortly after the train left from platform no 1 at 8.35 am. Fortunately it was not far from the station and we easily managed to extinguish the fire,” Gori said.
The cross-border train left for India a few hours behind schedule after a replacement engine was sent from Lahore.