China was the sole member in the 15-nation UN organ to put a hold on India's application with the rest 14 members of the Council supporting New Delhi's bid to place Azhar on the 1267 sanctions list that would subject him to an assets freeze and travel ban.
He said China understands India's concerns over the issue.
India believes "terrorism is a major issue for China. They know a number of terror groups are based in Pakistan", sources added.
"The fight against impunity is critical to the larger pursuit of securing peace and justice. The Security Council must send an unambiguous and unequivocal message on this count," External Affairs Minister S Jaishankar told the 15-nation UN Security Council briefing on Ukraine 'Fight against impunity'.
India has submitted a formal request to the United Nations Committee 1267, seeking inclusion of the name of Jaish-e-Mohammed chief Masood Azhar on the sanctions' list, said government sources.
Hafiz Abdul Salam Bhuttavi, an United Nations-designated terrorist who trained the Lashkar-e-Taiba (LeT) attackers for the 2008 Mumbai terror attack and acted as the outfit's chief on at least two occasions, died in a prison in Pakistan's Punjab province while serving a sentence for terror financing, his aide said on Wednesday.
China said it took the decision after it found no objection to the listing proposal by the United States, the United Kingdom and France following a careful study of the revised materials
If China would not have extended the technical hold, Azhar would have automatically been designated under the UN as a terrorist.
A United Nations Security Council panel has issued a 'revised' letter removing the term 'sahib' from the name of Mumbai terror attack mastermind and JuD chief Hafiz Saeed, saying it regrets the mistake after India objected to the use of the salutation.
China said that decision is in line with the rules of the committee.
The resolution, drafted by France and Tunisia, 'demands a general and immediate cessation of hostilities in all situations on its agenda and supports the efforts undertaken by the Secretary-General and his Special Representatives and Special Envoys'.
India has hit out at China for blocking a move to designate Pakistan-based LeT leader Sajid Mir as a "global terrorist" by the UN, saying it shows a lack of genuine political will to fight the scourge of terrorism.
The 13th report of the Analytical Support and Sanctions Monitoring Team cites a UN Member State as saying that Jaish-e-Mohammed (JeM), a Deobandi group ideologically closer to the Taliban "maintains eight training camps in Nangarhar, three of which are directly under Taliban control."
A UNSC designation will subject Azhar to an assets freeze, travel ban and an arms embargo.
Jaishankar, who presided over the UNSC Briefing: Global Counterterrorism Approach: Challenges and Way Forward, described terrorism as an existential threat to international peace and security and said it knows no borders, nationality, or race.
"The friendship between China and Pakistan appears to be very strong but the day is not far when China too gets affected by Pakistan-backed terrorism," Singh, who is in Gorakhpur to take part in a function at the Gorakhnath temple, told media persons on Monday night.
India has identified Azhar as the mastermind of the Pathankot terror attack on January 2, 2016.
China has blocked India's move in the UN demanding action against Pakistan over the release of Mumbai attack mastermind and LeT commander Zaki-ur-Rehman Lakhvi in violation of a resolution of the world body as it contended that India provided insufficient information.
The remarks by China's deputy permanent representative to the UN, Geng Shuang, came during an emergency meeting of the Security Council on the situation in Afghanistan on Monday after the sudden and rapid takeover of the Afghanistan government by the Taliban insurgents.
"If we have to recognise a government, the first thing is that we will need to wait until the government is formed," Chinese foreign ministry spokesman Zhao Lijian said.
Makki is a US-designated terrorist and brother-in-law of Lashkar-e-Tayiba chief and 26/11 mastermind Hafiz Saeed.
India has demanded the United Nations to slap sanctions against the new Taliban leader in Afghanistan, saying it is "sheer folly" that the leader of a proscribed entity is not yet designated as a terrorist individual.
Prime Minister Narendra Modi has taken up with Chinese leadership India's concerns over China blocking its move in the UN for action against Pakistan over release of 26/11 mastermind and LeT commander Zaki-ur-Rehman Lakhvi in violation of a resolution of the world body.
India said perhaps the Permanent Representative of Pakistan is "not aware that Osama bin Laden was hiding in their own country in plain sight, and it is the US forces which got him inside Pakistan. Nor have they heard their Prime Minister refer to Osama bin Laden as a martyr."
China on Thursday blocked another bid by the United States, France and the United Kingdom to list Pakistan-based Jaish-e-Mohammed chief and Pathankot terror attack mastermind Masood Azhar as a global terrorist by the United Nations, saying it has rejected the move as "there is no consensus".
India has said that terror groups like Lashkar-e-Tayiba do not "live on love and fresh air", expressing regret that they receive funds despite being slapped with sanctions by the United Nations, as the world body reaffirmed the need to cut the monetary lifeline of terrorists.
The reaction by the State Department came after Pakistan Premier Shahid Khaqan Abbasi, during an interview to Geo TV on Tuesday, referred to Saeed as 'sahib' or 'sir'.
The Quad summit to be hosted by India in 2024 is likely to enhance New Delhi's strategic intent.
United Nations proscribed terrorist Lakhvi, 61, who was on bail since 2015 in the Mumbai attack case, was arrested by the Counter-Terrorism Department of Punjab province on Saturday.
The demand for action by Pakistan was made through a joint statement issued after the 2+2 ministerial attended by the US Secretary of State Antony Blinken and Defence Secretary Lloyd Austin, Defence Minister Rajnath Singh and External Affairs Minister S Jaishankar.
Taliban failed to honour Doha accord, never renounced Al-Qaeda: US general Mark Milley
India said Lakhvi's release was in violation of the 1267 UN resolution dealing with designated entities and individuals.
Early this year the US along with the United Kingdom and France approached the United Nations's sanctions committee for the ban on Azhar.
Pakistan today said India's bid at the UN to ban Masood Azhar was "politically motivated" and "replete with frivolous information", two days after its close ally China blocked the proposal to get the JeM chief and Pathankot attack mastermind listed as a global terrorist.
In his address to the high-level UN General Assembly session, Jaishankar said those who politicise the UNSC 1267 Sanctions regime, sometimes even to the extent of defending proclaimed terrorists, do so at their own peril.
"Lashkar-e-Tayiba tactics is quite obvious. It is trying to increase tensions between India and Pakistan at a time when they and their associates are particularly under pressure in western Pakistan," Barrett said in at press conference at the UN Headquarters in New York.
A significant bid by the United States in the United Nations for designating Pathankot attack mastermind Masood Azhar as a global terrorist has been stymied by China which has again opposed the ban against the Pakistan-based Jaish-e-Mohammed chief.
Pakistan in a letter to UN Security Council 1267 Committee has contended that Hafiz Saeed supports a family of four members, as a sole supporter, he is responsible for food, drink and clothes expenses for all family members.
The Chinese technical hold was set to lapse on Monday, and had China not raised further objection, the resolution designating Azhar as a terrorist could stand passed automatically. The hold has been extended for another six months.
In his opening remarks at the virtual summit of the Shanghai Cooperation Organisation (SCO), Modi also said that some countries use cross-border terrorism as an instrument of their policy and the grouping must not hesitate to criticise them.