He said the changes were being made due to a "dire need to enhance the quality and scope of madrassa education".
All pupils and teachers in Pakistan's 20,000-plus madrassas will be centrally registered, an aspect of the reforms prompted when links were discovered between a small minority of the schools and al Qaeda after September 11.
The education sector reform assistance programme (Esra) which co-ordinates efforts between the United States Agency for International Development (USAID) and the Pakistani government, is providing training in new teaching methods for schools, including madrassas, in poor districts.
The reformers hope that instead of rote learning, children will be taught critical thinking so that they can challenge ideas, and in the long term decide and defend their own positions on religion and politics.
"What USAID is doing here is working with the government to promote the sort of educational change that would allow people to sift these ideas," Esra head Brian Spicer said.
But Maulana Fazlur Rehman, head of the Jamiat Ulema-e-Islami, a religious opposition party which also runs hundreds of madrassas, said that the Islamic schools strongly resent any external interference. "The madrassas want to retain their autonomy, their free position," the cleric said.
He denies any threat remains. "The interior ministry has declared formally that religious schools are clean from any activities of extremism or terrorism. The problems with this government come from the interference of foreign powers."
As president of this Islamic nation, Musharraf is caught between the dual needs for extreme sensitivity over religion and co-operation in the US-led international coalition against terrorism.
Substantial grants, debt relief and aid packages have flooded into Pakistan since it allied itself with the United States after September 11. During Musharraf's state visit to Washington in June, president Bush announced a $3 billion (pound;1.7bn) package for Pakistan, $1bn of debt cancellation and a further $120m for education alone.
Religion is too sensitive an issue here for the US to be seen to be interfering in madrassas. Officially there are no strings attached to the money. But Musharraf is aware that Washington expects strict controls to be placed on the madrassas, which US defence secretary Donald Rumsfeld has called the front line in the "battle of ideas" since September 11.
With this new allegiance proving lucrative enough to help stabilise the poverty-stricken nation's economy, Pakistan is unlikely to bite the hand that feeds it, even at the risk of discord at home.