US officials have charged two men with illegally lobbying the government for Pakistan and its intelligence agency, the ISI, over the Kashmir dispute.
Syed Ghulam Nabi Fai, 62, was arrested for failing to register as an agent of a foreign government.
Zaheer Ahmad, 63, was charged but is reported to be in Pakistan. Both are US citizens of Pakistani origin.
US officials say Pakistan spent at least $4m since the mid-1990s lobbying Congress and the White House.
Correspondents say Mr Fai's arrest is likely to worsen already strained relations between Washington and Islamabad.
Mr Fai is the executive director of the Kashmiri American Council.
Officials say he donated money to political campaigns, wrote newspaper articles and met White House and state department officials.
"I believe that Fai has received approximately $500,000 to $700,000 per year from the government of Pakistan," FBI agent Sarah Webb Linden said in documents filed in court in Virginia, Associated Press reported.
Officially, the Kashmiri American Council had a much smaller budget and it said that it received no foreign grants.
"Mr Fai is accused of a decades-long scheme with one purpose - to hide Pakistan's involvement behind his efforts to influence the US government's position on Kashmir," Reuters quoted Neil MacBride, US Attorney for Eastern Virginia, as saying.
The Pakistani embassy in Washington issued a statement denying any government knowledge of such an arrangement.
"Mr Fai is not a Pakistani citizen and the government and embassy of Pakistan have no knowledge of the case involving him," the statement said.
Prosecutors said the second man, Zaheer Ahmad, recruited people to act as donors who would give money to the council which really was coming from the Pakistani government.
Kashmir has been a flashpoint between India and Pakistan for long.
Both countries claim the territory in its entirety and have fought three wars over it.
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