With the consideration of three-body interaction, dynamics of pairwise entanglement in spin chains is studied. The dependence of pairwise entanglement dynamics on the type of coupling, and distance between the spins is analyzed in a finite chain for different initial states. It is found that, for an Ising chain, three-body interactions are not in favor of preparing entanglement between the nearest neighbor spins, while three-body interactions are favorable for creating entanglement between remote spins from a separable initial state. For an isotropic Heisenberg chain, the pairwise concurrence will decrease when three-body interactions are considered both for a separable initial state and for a maximally entangled initial state, however, three-body interactions will retard the decay of the concurrence in an Ising chain when the initial state takes the maximally entangled state.