Baby Mohammad Musa along with his father and other family members was booked for throwing rocks at gas company officials in the working-class Ahata Thanedaran neighbourhood on Feb 1, the family's lawyer Chaudhry Irfan Sadiq told AFP on Friday.
Inspector Kashif Muhammad, who attended the alleged crime scene and has since been suspended, wrote in his report that it was a case of attempted murder.
Appearing in a packed court room with others accused in the case on Thursday, Musa was seen crying as his grandfather Muhammad Yasin held him on his shoulder.
Yasin later fed him milk from a bottle while fielding questions from reporters.
"Everyone in the court was saying 'How can such a small child be implicated in any case'? What kind of police do we have?" the 50-year-old labourer said.
The charge is in direct contradiction with Pakistan's minimum age of criminal responsibility, which was raised from seven to 12 years in 2013 except in terrorism cases.
Mr Yasin accused the police of fabricating the charges because they were colluding with a rival party who wanted to see the accused evicted from their land and had obtained an order to remove their gas connections.
"The police and gas company officials came without any notice and started removing gas metres from houses. Residents started protesting and blocked the road but ended the protest when senior police officers arrived in the area and assured them that no injustice would be done.
"But later we found out that cases have been filed against us," he added.
Judge Rafaqat Ali Qamar ordered the inspector to be suspended and granted the child bail, though he will have to appear at the next hearing on April 12.
But Mr Sadiq, the lawyer, said the charges against the child should have been dropped.
"The court should have simply referred the minor's case to the High Court to drop the charges against the innocent child and acquit him from the case," Mr Sadiq told AFP.
"This case also exposes the incompetence of our police force and the way they are operating," he added.
Feisal Naqvi, a supreme court lawyer told AFP the naming of family members in police reports was a common tactic employed by complainants in order to exert pressure on parties with whom they were involved in a dispute.
He said: "It's not common for babies to be accused but it is common for other family members to be accused," he said.
"What happens then is that vendettas are going on so everyone gets picked up and gets chucked in jail," he added.
Shoaib Suddle, a retired police chief, added that the system operates via 'first information reports' that date back to British colonial times, which give too much weight to allegations made by accusers.
"The moment they are able to file a complaint, accusers expect that without any evidence people should be locked up and the investigation should follow, whereas the world over it is the other way around," Mr Suddle said.