I am using a Callback control to take some input and apply filters on the data in my grid. The server side event handler for the call back works fine except for rendering the new data. As soon I put Grid.RenderControl(e.Output); in the code, a javascript error, which says "Undefined Runtime Error" is generated and thus stopping the AJAX call.

Somebody please tell me what's the workaround. Thanks in advance.

Can you post the server-side Callback handler code?
Usually it is a good idea to test the server code without the callback to make sure its error free.
You can also set Debug="true" in the callback control to see the actual error.

With the grid you need to add an empty (and visible="false") grid to the page first so all the client-scripts are registered properly