The Indus Basin of Pakistan has archived thick and laterally extensive Permian carbonates. The current study focuses on constraining the palaeoenvironments, reservoir potential, and ambient climatic conditions during the deposition of Late Permian clastic-dominated carbonates of the Chhidru Formation, Indus Basin, Pakistan. At outcrop, the unit shows laterally variable thicknesses of dominantly thick-bedded, fossiliferous, channelized calcareous sandstone, and sandy limestone. The microscopic textural, compositional, and biotic attributes divulged four microfacies, arguing for the deposition in a range of diverse depositional environments including lagoonal to deltadominated middle shelf. The deposition of clastic-rich carbonates of the Chhidru Formation on the underlying pure carbonates of the Wargal Formation hints strongly towards a sea-level fall on the northwestern margin of the Indian Plate. The regression tightly correlates with the stratigraphic record of the adjacent continents, including South China, the Persian Gulf, and northern Gondwana regions. The abundance of detrital material indicates terrestrial influx to the basin, inhibiting the benthic activity and consequently resulting in poor microfossil content. Nevertheless, 11 agediagnostic foraminiferal taxa were identified, suggesting a Late Wuchiapingian to Changhsingian age. The X-ray diffraction analysis of argillaceous horizons revealed several climate-sensitive clay minerals. Based on the dominance of illite, palygorskite, sepiolite, and chlorite, an extremely arid and cold climate is suggested for the region during the time of deposition of the Chhidru Formation. Petrographic observations suggest reworking of sediments shed from the Indian Shield of the Aravalli system and MalaniRange. The petrography, scanning electron microscopy, and energy dispersive X-ray spectroscopy revealed multiple diagenetic phases including marine, meteoric, and burial that have shaped the unit into a poor to moderate reservoir.