The police arrested a 35-year-old man on Friday in Odisha, accusing him of passing military secrets to Pakistan's Inter-Services Intelligence (ISI) agency.
Police said Ishwar Chandra Behera was passing on information about missile activities conducted at a unit of India's Defence Research & Development Organisation, where he worked as a cameraman.
"He was providing vital information related to missile tests and other military activities to an ISI agent for the past 8-10 months," Odisha's inspector general of police A.K Panigrahi told Reuters. "He confessed that he had met an (ISI) agent in Kolkata a number of times."
India accuses elements in Pakistan's army and ISI of shielding or working with militant groups, which Islambabad denies.
Tensions between nuclear-armed India and Pakistan, which are also at odds over the disputed region of Kashmir, have risen since Indian Prime Minister Narendra Modi called off peace talks in August. Troops on both sides have exchanged fire across the border in recent months.
Police said they found a substantial amount of money had been transferred to Behera's bank account from several places including Abu Dhabi and Mumbai. They are investigating if he was assisted by anyone else.
"We had information that his activities are suspicious and he should be watched ... He confessed he is in touch with the ISI agent and is passing on very vital information," Panigrahi said.
Reuters could not contact Behera, who is in custody.
India has stepped up security, especially in the capital New Delhi, in preparation for a three-day visit by U.S. President Barack Obama, starting on Sunday.