Thanks a lot Richard,

The code hereunder works

BTW, I had to change the config settings (fuses) since you might have copied them for another PIC and generated errors while compiling. Please let me know if I should take care to change some of them.

For the test, I removed the 32,768kHz crystal while running () and the LED stops blinking which is correct.

Code:
' ====== FUSES ====================================================================================
' PIC 16F690
@ __config _INTRC_OSC_NOCLKOUT &_WDT_OFF &_PWRTE_OFF &_MCLRE_OFF &_CP_OFF &_CPD_OFF &_BOR_OFF &_IESO_OFF &_FCMEN_OFF

' ====== INTERRUPT SERVICE ROUTINE ================================================================
GOTO INIT: ' Just to place ISR at top of program
DISABLE
ISR: 'if TMR1IF is set (TMR1 has overflown)
    toggle PORTB.6 'LED
    PIR1.0 = 0 ' clear TMR1IF overflow flag
    TMR1H  = 0
    TMR1L  = 0
    resume
ENABLE

' ====== INITIALIZE ===============================================================================
INIT:
PIR1.0 = 0 ' clear TMR1IF overflow flag
TMR1H  = 0
TMR1L  = 0

' ====== DEFINES ==================================================================================
DEFINE OSC 4

' ====== REGISTERS ================================================================================
'             76543210
OPTION_REG = %10000000 ' Pull-Ups disabled
OSCCON     = %01100000 ' Internal RC set to 4Mhz
ANSEL      = %00000000 ' Analog inputs Channels 0 to 7
ANSELH     = %00000000 ' Analog inputs Channels 8 to 11
INTCON     = %11000000 ' INTerrupts CONtrol: GIE is ON, PEIE is ON 
T1CON      = %00111011 ' Timer1 OSC enabled, Timer1 enabled, presc.1:8
PIE1       = %00000001 ' Enable TMR1IF overflow flag

' ====== PROGRAM ==================================================================================
PAUSE 1000 'circuit settle time

ON INTERRUPT GOTO ISR

MAIN:
    goto MAIN:
END