Modi said unless coordinated efforts were made to contain radicalisation, recruitment of terrorists, their training and financing, it is impossible to find a solution.
To enhance the capacity of member states in coordination and implementation in the security field, Xi called on the SCO to strengthen regional counter-terrorism institutional building and resolutely crack down on illicit drug manufacturing and trafficking.
"I have full confidence that the India-SCO cooperation will give a new direction and strength to the fight against terrorism", he said.
India and Pakistan's joining the Shanghai Cooperation Organization (SCO) will speed up realization of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project, Malik Ayub Sumbal, Pakistani political analyst and worldwide relations expert, believes.
President Xi stressed on boosting trade and investment cooperation so that the two countries can reap "early stage profits" from large-scale projects.
Chinese President Xi Jinping yesterday told Indian Prime Minister Narendra Modi that the two countries should work to "appropriately" manage their differences, the Chinese Foreign Ministry said in a statement online.
Advisor to Prime Minister on Foreign Affairs Sartaj Aziz was also present in the meeting.
In his speech, Pakistan Prime Minister Sharif said the SCO's expansion was taking place at an "opportune time as a Belt and Road Initiative (BRI) transforms the global economic landscape".
The regional pact was established in 2001 and comprises of Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.
The UN chief said that the SCO plays a valuable role in promoting mutual understanding, dialogue, stability and development across much of Eurasia, and its members are working together to combat some of on Friday's key threats to peace and security, including terrorism, violent extremism, drug trafficking and organized crime.
It is tempting to see India's SCO membership as out of character, given India's traditional hostility to Pakistan and Modi's general inclination to balance against China rather than accommodate it. He also thanked SCO countries for granting membership to India.
The SCO remains open to new applications and will next consider the candidacy of Iran, which is backed by Russian Federation but opposed by some members of the organization.
India, Iran and Pakistan were admitted as observers at the 2005 Astana Summit.