The purpose of this study was to identify genetic variants in the promoter and 5’UTR regions of bovine leucine amino peptidase three (LAP3) gene and analysed their associations with estimated breeding values (EBVs) of milk production traits and clinical mastitis in Sahiwal and Karan Fries cattle. Eleven SNPs were identified within the region under study of the LAP3 gene, including seven promoter variants (rs717156555: C>G, rs720373055: T>C, rs715189731: A>G, rs516876447: A>G, rs461857269: C>T, rs136548163: C>T, and rs720349928: G>A) and four 5’UTR variants (rs717884982: C>T, rs722359733: C>T, rs481631804: C>T and rs462932574: T>G). Out of them, 10 SNPs variants were found in both Sahiwal and Karan Fries cattle, with one SNP variant (rs481631804: C>T) being unique to Karan Fries cattle. Seven of these identified SNPs were chosen for association analyses. Individual SNP based association analysis revealed that two SNPs (rs720373055: T>C and rs720349928: G>A) were significantly associated with EBVs of lactation milk yield (LMY), 305-day milk yield (305dMY), and one significant association of SNP rs722359733: C>T with lactation length (LL) was observed. Haplotype based association analysis indicated that diplotypes are significantly associated with EBVs of LMY, 305dMY, and LL, individuals with H1H3 (CTACGCT/GCGTACG) being linked to higher lactation performance than other diplotypes. Further logistic regression analysis revealed that, animals with diplotype H1H3 was less susceptible to the incidence of clinical mastitis than other cows, as the odds ratio for the non-incidence of clinical mastitis was found to be low. Altogether, variations in the LAP3 gene promoter could be used as a genetic marker, most notably diplotype H1H3, may greatly benefit the simultaneous improvement of mastitis resistance and milk yield traits in dairy cattle. Moreover, bioinformatics analysis predicted that the SNPs rs720373055: T>C, rs715189731:A>G and rs720349928: G>A is located in the core promoter region and in TFBs, play key role in regulation of studied phenotypes.