If Musharraf is convicted of high treason, he could face a possible death sentence or life imprisonment.
Sharif made the announcement in the national assembly or lower house of parliament less than three weeks after returning as premier following his PML-N party's victory in the general election.
Musharraf's actions came under the purview of "high treason", Sharif told parliament.
The 69-year-old former army chief, currently under house arrest, should face trial in the supreme court and answer for his actions, Sharif said.
Referring to Musharraf's decision to impose emergency rule in 2007, Sharif said, "The federal government…firmly subscribes to the view that the holding in abeyance of the constitution on November 3, 2007 constituted an act of high treason within the meaning of Article 6 of the constitution of Pakistan."
The prime minister is under oath to protect and defend the constitution and "it is implicit in this oath that his government ensures that persons guilty of acts under Article 6 are brought to justice", he said.
Reading from a statement presented by Attorney General Munir Malik to the Supreme Court, Sharif said, "Notwithstanding the fact that the prime minister has borne the brunt of Musharraf's brazen coup, he wishes to assure both this august court and the people of Pakistan that he will act according to the highest standards of justice and follow the due process of law."
Sharif further said his government would "take political forces into confidence through a consultative process" in order to proceed with Musharraf's trial.
Soon after the premier spoke in parliament, the attorney general conveyed the government's position to a supreme court bench hearing a petition seeking Musharraf's trial for high treason.
The attorney general said the process for putting Musharraf on trial had been started though the government needed 30 days to chart its future course of action.
However, the apex court gave the attorney general only three days to decide on a course of action and directed him to submit the government's response by Thursday.
Experts said the government could also face pressure from the powerful military, which would not like to see a former army chief being publicly humiliated.
Under Pakistani law, a treason trial can be initiated only by the government.
During his speech in parliament, Sharif said Musharraf would have to answer for his actions in court.
"Musharraf violated the constitution twice. He overthrew an elected government in 1999 and put everything into jeopardy. He sacked judges and imprisoned them," said Sharif.
Musharraf had stopped judges of the higher judiciary from working through illegal orders and resorted to the unconstitutional step of imposing emergency in 2007, Sharif said.
Opposition leaders from the Pakistan Peoples Party and Pakistan Tehrik-e-Insaf extended support to Sharif's decision.
In April, the caretaker government formed to conduct the election had refused to try Musharraf for treason, saying such a move was beyond its mandate.
Musharraf was arrested shortly after he returned to Pakistan in March after years in self-exile.
A court subsequently barred him from contesting polls for the rest of his life.
He faces charges in several high-profile cases, including the 2007 assassination of former premier Benazir Bhutto, the killing of Baloch nationalist leader Akbar Bugti in 2006 and the imposition of emergency rule in 2007.
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