Police have arrested 45 people in connection with Khan's death.
Mashal Khan, a journalism student, was stripped, beaten, shot, and thrown from the second floor of his hostel at the Abdul Wali Khan university in Mardan, sources at the university said.
Pakistan's blasphemy laws, which are embedded in Sections 295 and 298 of the Pakistan Penal Code, carry the death penalty, and yet there is no provision to punish a false accuser or a false witness of blasphemy.
"The student has been brutally murdered by his fellow students", said senior police official Niaz Saeed. "The police went through the social media page administered by him and other profile posts which did not show any blasphemous content", the IG KP said.
The mob instead seems to have been incited by rumours circulating among the university's student body.
He refused to comment on the political affiliation of the students involved in Mashal's lynching, saying only that an investigation was still underway. The officers said they could not stop the lynching because the mob outnumbered them by a large margin.
Two other students were also wounded in the violent attack after being accused of committing blasphemy against Islam.
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"But the enraged students grew to a mob and they attacked the room", the source said.
In a statement released to the press on Saturday, Prime Minister Nawaz Sharif said he was "shocked and saddened by the senseless display of mob justice that resulted in the murder of a young student, Mashal Khan, at Wali Khan University".
Following the incident, AWKU Assistant Registrar Ashoor Khan issued a notification stating the university will be closed until further notice.
Blasphemy remains a highly sensitive issue in Pakistan and despite the law, many have been killed by angry mobs without being given a chance to appear before court.
Sixty-five people or more have been killed because of blasphemy accusations since 1990, according to the Center for Research and Security Studies.
The body has been shifted to District Headquarters Hospital for an autopsy.
The ransacked university hostel room of slain Pakistani student Mashal Khan has posters of Karl Marx and Che Guevara still hanging on the walls, along with scribbled quotes including one that reads: "Be curious, insane and mad".