The incident occurred Monday in the remote village of Bakhrani in Sindh, 510 kilometres north of Karachi.
"The 10-year-old was caught having an extramarital affair with a lady from another tribe, which created bad blood between the two tribes," a local police official requesting anonymity told AFP.
"The incident was later taken to a jirga which ordered the boy's family to pay a fine of Rs700,000 to the aggrieved side.”
"The boy's family paid Rs50,000 up front and undertook to pay off the remaining amount within three months," he added.
The chief police officer of the district, Umar Tufail, confirmed the incident but said the tribal court's decision was illegal and was under investigation.
"It has came to our knowledge that a jirga was held to solve a dispute regarding an extramarital affair. We are looking into the incident as jirgas are illegal," he told AFP.
Under Pakistan's penal code, an adult male having sex with a female child is considered to have committed statutory rape, but a woman having sex with a boy does not come under the law.
The woman could however be prosecuted for sexual assault or unnatural sexual acts, lawyer Sundas Hoorain told AFP. Adultery is also a crime but rarely prosecuted.
Jirgas typically take the form of a council of male elders assigned to resolve disputes.
They have repeatedly come in for criticism for issuing controversial decisions, including forcibly marrying off young girls to end family feuds.
In July 2013 the Supreme Court declared the jirgas illegal and asked provincial authorities to clamp down on them.
But they persist in rural areas as a dispute settlement mechanism for people without the means to use regular courts.
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