According to police, more than 80 suspects were arrested in connection to the Saturday killing in Khanewal district in Punjab province.
According to reports, the man was taken into custody by police before being seized by a group.
His body was given to his family, and a funeral was held on Sunday.
Imran Khan, Pakistan's Prime Minister, stated that the case would be dealt with "with the full severity law" and requested a report from police officers who were accused of failing to rescue the man.
He stated that his government had "zero tolerance" for anyone who took the law into their hands.
Munawar Hussain, a police official, said that officers arrived to find the man unconscious and tied to a tree. Khanewal can be found 275km (170 mi) south-west from Lahore.
According to Mr Hussain, "The villagers armed in batons and axes and iron rods murdered him and hanged him from a tree."
Munawar Gujjar was chief of Tulamba's police station, where the incident occurred. The AP news agency stated that the victim had been "mentally stable" for the past 15 years.
This killing occurs just two months following the beating death of a Sri Lankan factory manager by a mob for blasphemy in Sialkot, also in Punjab province.
While the blasphemy laws in Pakistan can lead to death for anyone who insults Islam or is a threat to Islam's existence, critics claim that they are being used to oppress minorities and unfairly target them.
These laws were used to settle individual scores in cases that could appear to have little to no relationship to religion, according human rights groups.