The strategically located lake, approximately 14,000 feet (4,267 meters) above sea level, spans an area stretching from the Indian territory of Ladakh to Chinese-controlled Tibet, in the greater Kashmir region where India, China and Pakistan all claim territory.
The LAC, which marks the de facto border, passes through the lake.
At least 20 Indian soldiers were killed in that incident. China has never acknowledged any casualties from that clash.
In a joint statement, both sides agreed to strengthen communication on the ground to avoid misunderstandings or action “that may complicate the situation.”
They also agreed to not take any unilateral action that would change the situation on the ground, the statement said.
India and China share a 2,100 mile-long (3,379-kilometer) border in the Himalayas, but both sides claim territory on either side of it.
The LAC was established in the wake of the 1962 Sino-Indian war and shows up on maps, however India and China do not agree on its precise location and both regularly accuse the other of overstepping it, or seeking to expand their territory.
In 1996, the two countries signed an agreement which states that neither side shall open fire within 2 kilometers (1.24 miles) from the LAC to “prevent dangerous military activities.”
CNN’s James Griffiths and Helen Regan contributed to this report.