A naturalized U.S. citizen pleaded guilty on Wednesday to secretly receiving millions of dollars from Pakistan and its spy service while lobbying in the United States over the disputed territory of Kashmir.

In a deal with federal prosecutors, Syed Ghulam Nabi Fai pleaded guilty in U.S. District Court in Alexandria, Virginia, to conspiracy and tax violations over a decades-long scheme to conceal $3.5 million that came from Pakistan to fund his lobbying efforts.

The Pakistani government has denied any knowledge of Fai's activities. His guilty plea comes at a time of tense relations with the United States. Ties were frayed by the secret U.S. raid that killed al Qaeda leader Osama bin Laden in Pakistan in May and plunged into crisis by a NATO air strike that killed 24 Pakistani troops on Nov 26.

Fai and another defendant, Zaheer Ahmad, were initially charged in July with conspiring to act as Pakistani agents in the United States without registering as foreign agents. Ahmad, also a naturalized U.S. citizen, remains at large and is believed to be in Pakistan.

Fai served as executive director of a Washington group, the Kashmiri American Council that described itself as a nonprofit organization run by Kashmiris and financed by Americans.

But an FBI affidavit filed in court in July said Fai and the group received several million dollars from Pakistan and its military spy agency, the Inter-Services Intelligence Agency, since the mid-1990s in an effort to influence the U.S. government's position on Kashmir.

For the last 20 years, Mr. Fai secretly took millions of dollars from Pakistani intelligence and lied about it to the U.S. government, U.S. Attorney Neil MacBride said in a statement.

He did the bidding of his handlers in Pakistan while he met with U.S. elected officials, funded high-profile conferences, and promoted the Kashmiri cause to decision-makers in Washington, MacBride said.

Fai admitted in court that, from 1990 until his arrest in July, he conspired with others to obtain money from Pakistani government officials, including its spy agency, to operate his group.

Fai, 62, who lives in Fairfax, Virginia, faces up to five years in prison for the conspiracy count and up to three years in prison for the tax violation. The judge set sentencing for March 9.

Kashmir is divided between India and Pakistan, both of which claim the mountainous region in full. The two nations have fought two of their three wars over it. Kashmiri separatists in India want to carve out an independent homeland or merge with predominantly Muslim Pakistan.

(Reporting by James Vicini; editing by Anthony Boadle)