The incident occurred earlier this month in the neighbourhood of Raja Ram in Muzaffarabad, a suburb of the central city of Multan.
The incident occurred earlier this month in the neighbourhood of Raja Ram in Muzaffarabad, a suburb of the central city of Multan, investigators told AFP.
"A jirga (village council) had ordered the rape of a 16-year-old girl as punishment, as her brother had raped a 12-year-old," said Allah Baksh, a local police official.
He said the village council was approached by a man who complained that his 12-year-old sister had been raped by their cousin.
The council then ordered the complainant to rape the sister of the accused in return, Baksh said -- an order which was duly carried out.
The allegations were confirmed by Rashid Taheem, the police officer heading the investigation.
"Both the parties had filed cases of rape against each other at the local police station after the incident that happened last week," he told AFP.
"We have arrested 14 people of the village council so far," he said, adding that the "main accused" -- the man who raped the 12-year-old -- was still at large.
Jirgas, or village councils formed of local elders, are a traditional means of settling disputes in Pakistan's rural areas, where courts and lawyers are not always accessible or trusted.
But such councils are illegal and have been under fire for their controversial decisions, especially regarding women.
A jirga was involved in one of South Asia's most infamous cases of sexual violence against women when, in 2002, it ordered the gang rape of a woman called Mukhtar Mai after her brother was falsely accused of rape.
Mai made the unusual decision to defy her rapists and take them to court. Her attackers walked free but she went on to become a high-profile women's rights activist.
Her story inspired an opera, "Thumbprint", which opened in New York in 2014 and premiered in Los Angeles last month.