US justice officials charged two alleged Pakistani agents on Tuesday over a decade-long effort to illegally funnel millions of dollars to push the Kashmiri cause in Washington.

The Justice Department unsealed conspiracy charges against Ghulam Nabi Fai, 62, a US citizen, and Zaheer Ahmad, 63, a US citizen and resident of Pakistan, and said both faced up to five years in prison if found guilty.

The influence peddling allegations, which come amid strained ties between the United States and its nuclear-armed ally, center on the Kashmiri American Council (KAC), a Washington-based NGO founded in 1990.

"According to the affidavit, Fai and the KAC have received at least $4 million from the Pakistani government since the mid-1990s through Ahmad and his funding network," the Justice Department said.

"Foreign governments who try to influence the United States by using unregistered agents threaten our national security," said FBI Assistant Director in Charge James McJunkin.

Fai was arrested on Tuesday morning and set to appear on Thursday before a court in Alexandria, near the US capital, to hear the charges. Ahmad was believed to be currently residing in Pakistan.

US Attorney Neil MacBride said: "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.

"His handlers in Pakistan allegedly funneled millions through the Kashmir Center to contribute to US elected officials, fund high-profile conferences, and pay for other efforts that promoted the Kashmiri cause to decision-makers in Washington."

But a spokesman from the Pakistani embassy told the media: "Mr Fai is not a Pakistani citizen and the government and embassy of Pakistan have no knowledge of the case involving him."

The complaint said KAC was one of three ‘Kashmir Centers’ actually run by Pakistan's military intelligence service, the Inter-Services Intelligence Agency (ISI) – the other two being in London and Brussels.

Fai, who serves as KAC’s Washington director, is accused of using money provided by Ahmad to lobby the corridors of power in Washington to support Pakistan's desire for self-determination for Kashmiris.

Under the Foreign Agents Registration Act, it is illegal for anyone seeking to influence US policy or law not to fully disclose their identity and any underlying information.

"The defendants are accused of thwarting this process by concealing the fact that a foreign government was funding and directing their lobbying and public relations efforts in America," said Assistant Attorney General for National Security Lisa Monaco.

The complaint alleged that the two conspired illegally as Pakistani agents, falsifying and concealing material facts that they had a duty to disclose in their dealings with the United States government.

A witness told FBI investigators that the ISI created the KAC as a propaganda tool and had been directing Fai's activities for the past 25 years, according to the Justice Department statement.

Fai has been in touch with four Pakistani government handlers more than 4,000 times since June 2008, it said.

Earlier this month, the United States decided to withhold a third of its annual $2.7 billion security assistance to Islamabad amid strained diplomatic relations following the May 2 raid that killed Al-Qaeda chief Osama bin Laden.

The powerful Pakistani military was humiliated by the bin Laden raid, which attracted allegations of incompetence or complicity with Al-Qaeda.

Pakistan supports Kashmir's right to self-determination in line with UN resolutions calling for a plebiscite on whether it should be ruled by India or Pakistan.

Kashmir was split in two in the aftermath of independence on the subcontinent when British rule ended in 1947. Both India and Pakistan claim the entire territory, which is divided by a heavily militarized Line of Control.

India accuses Pakistan of sponsoring an Islamist insurgency that has claimed tens of thousands of lives in the last two decades in Kashmir. Pakistan denies the claim but has often spoken in support of the fighters.

India and Pakistan, nuclear-armed rivals and neighbors, have fought two of their three wars over the fate of the territory.