India is grappling with the possibility that one of its own undercover operatives helped equip the Islamist extremists who attacked Mumbai, killing more than 170 people.

Police in Indian-controlled Kashmir demanded the release of one of their undercover agents on Sunday after he was arrested by police in Delhi for allegedly supplying a mobile SIM card used by the Mumbai gunmen.

Mukhtar Ahmed, 35, originally from Indian-controlled Kashmir, was detained on Friday in Delhi. He is being held with another man, Tauseef Rehman, 26, who was arrested in his home city of Calcutta on the same day.

The detention of the two men, both now being held in Calcutta, had been hailed as a potentially key breakthrough in the Mumbai investigation.

The operation turned sour, however, after police in Srinagar, Indian Kashmir's summer capital, said that Ahmed worked for them, raising the possibility that an Indian agent aided the militants that committed India's worse terror attack in 15 years.

A senior officer in Srinagar, Kashmir's summer capital, said Calcutta police were told that Ahmed is "our man and it's now up to them how to facilitate his release".

He said that Ahmed was a Special Police Officer, part of a semi-official counterinsurgency network whose members are usually drawn from former militants.

"Sometimes we use our men engaged in counter-insurgency ops to provide SIM cards to the [militant] outfits so that we track their plans down," he said.

A police spokesman in Calcutta told The Times that his force was investigating the claims. He said the arrests of the two men were the result of the "very neat" cooperation of India's intelligence agencies.

At stake now, however, is the perceived integrity of the Indian police: Lashkar-e-Taiba, the Pakistan-based terrorist faction that Indian officials believe is behind the Mumbai attacks, was formed to free Kashmir from Indian rule and has long infiltrated militants into the state.

The arrests of the two men also provided the first indication that the Indian authorities, who have so far insisted that the Mumbai attacks were planned in and launched from Pakistan, believe the gunmen may have received help from inside India.

It is alleged that both men were in Calcutta in October when Mr Rehman used a dead relative's identification to buy several SIM cards, some of which were later used by the Mumbai terrorists. Mr Rehman gave or sold the SIM cards to Mr Ahmed, police allege. Both men have been charged with fraud and criminal conspiracy.

A police spokesman in Calcutta emphasised, however, that it was not clear whether Mr Ahmed and Mr Rehman knew that the SIM cards would be used by terrorists.

The Mumbai police said they recovered seven mobile phones, three global positioning system handsets and one satellite phone from the terrorists. Indian officials have claimed that the satellite phone was used to place calls to Pakistan.

Meanwhile, Rakesh Maria, the police officer who is leading the investigation into the attacks in Mumbai, said that overseas agencies had not been allowed access to Kasab, the captured gunman. The Mumbai police have, however, passed DNA evidence from the gunman to the FBI.

Suggestions that home-grown militants may have been involved in the Mumbai plot were ramped up last week when it emerged that Indian police arrested four Indian Muslims for alleged involvement in a planned attack on Mumbai as early as February.

One of them, Faheem Ahmed Ansari, was carrying a fake Pakistani passport and a list and maps of nine targets in southern Mumbai, including the Taj Mahal hotel and other sites attacked last week, police said.

The revelation appears to undermine India's assertion that the attack on Mumbai last week, in which 171 people were killed, was planned and executed only by Pakistani members of the militant group Lashkar-e-Taiba, which has links to Pakistan's Inter-Services Intelligence agency.

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