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Hafiz Muhammad Saeed founded Lashkar-e-Taiba, blamed by US and India for the Mumbai terror attacks in 2008 in which 166 died. Photograph: Aamir Qureshi/AFP/Getty Images
The US has offered a $10m (£6m) reward for information leading to the arrest and conviction of a prominent Pakistani radical blamed for the 2008 Mumbai terror attacks, in which 166 people were killed.
Hafiz Muhammad Saeed founded the violent extremist group Lashkar-e-Taiba (LeT), which in the 1990s sent Islamist militants to fight Indian troops in Kashmir, and is blamed by US and Indian officials for organising the 2008 attacks on tourists and commuters in India's commercial capital.
The move is seen as a direct challenge to Pakistan's security establishment, which has a close relationship with Saeed. Although he was briefly put under house arrest and is banned from travelling to the capital, Saeed regularly addresses mass rallies of his supporters. Last month he evaded police and joined a demonstration outside parliament in Islamabad.
The US state department's Rewards for Justice programme also announced a $2m reward for Hafiz Abdul Rehman Makki, Saeed's brother-in-law and the group's second-in-command.
The rewards were announced by Wendy Sherman, US under secretary of state for political affairs, in a meeting with the Indian foreign secretary, Ranjan Mathai, on Monday.
Sherman is visiting India to shore up local support for US sanctions against Iran – India is a significant customer for Tehran's oil – and to listen to Indian concerns about the region as Washington seeks to repair relations with Pakistan and its military.
The Indian ministry of external affairs said Delhi "sincerely appreciated" the move against Saeed, but it could greatly complicate already fraught US relations with Pakistan.
In an interview with Al Jazeera, Saeed said the US move came after he organised rallies against the reopening of supply lines through Pakistan to Nato forces in Afghanistan. He denied having links to the Mumbai attacks.
"We are not hiding in caves for bounties to be set on finding us. I think the US is frustrated because we are taking out countrywide protests against the resumption of Nato supplies and drone strikes," he said. "I believe either the US has very little knowledge and is basing its decisions on wrong information being provided by India or they are just frustrated."
Muhammad Yahya Mujahid, a spokesman for Saeed's Jamaat-ud-Dawa, the political wing of LeT, said the announcement was "an onslaught on Islam and Muslims".
He told the Guardian: "The world knows that Hafiz Muhammad Saeed and Hafiz Abdul Rehman Makki … are the mainstream religious and political leaders of the country.
"The US, on behalf of India, has started this kind of propaganda against the nation's mainstream leaders. The latest American tactics will not create any trouble for Hafiz Saeed but it will definitely shock billions of Muslims and give impetus to anti-American sentiments."
Delhi has repeatedly sent dossiers containing what officials say is "clear evidence" of Saeed's involvement in the Mumbai attacks to both Islamabad and Washington and has demanded that Pakistan shut down what it says are "safe havens" for militants.
Indian officials have been particularly concerned in recent months by the emergence of the Difa-e-Pakistan, or Pakistan Defence Council, a coalition of rightwing and religious parties that has organised large rallies addressed by prominent militants, including Saeed.
The $10m reward puts Saeed in the same price bracket as Mullah Omar, the chief of the Afghan Taliban who ruled Afghanistan in the 1990s. It also makes him twice as valuable as Hakimullah Mehsud, leader of the Pakistani Taliban, and Sirajuddin Haqqani, the Afghan insurgent chief whose Haqqani network was accused of firing rockets at the US embassy in Kabul in September.
Only Ayman al-Zawahiri, the head of al-Qaida, commands a larger reward, with up to $25m offered for information leading to his arrest.
The fact that all are still at large highlights how multimillion-dollar incentives do not always have the desired effect. Though some attacks have been averted by paid-for information, it has been difficult to bribe members of radical groups.
The timing of the announcement, which was approved by Hillary Clinton, will surprise some observers, given Washington's evident desire to improve diplomatic ties with Islamabad before next month's Nato summit in Chicago where the west's long-term role in Afghanistan is due to be thrashed out.
Relations between the two countries have been increasingly fraught after the killing of Osama bin Laden in Abbottabad last May, the incident involving Raymond Davis, the CIA agent who shot and killed two men in Lahore, and the accidental killing by US forces in Afghanistan of 24 Pakistani troops at a frontier post last November.
High-level diplomatic discussions have only reopened in recent weeks, with one of Clinton's deputies, Thomas Nides, due to arrive in Islamabad on Wednesday.
The Americans want to see the completion of a review of US-Pakistani relations that has dragged on for months and is being debated by the country's parliament. Washington hopes it will lead to the reopening of land supply routes into Afghanistan.
Cyril Almeida, a columnist for the Dawn newspaper, said the move against Saeed would be seen as a sign of growing US irritation with Pakistan.
"If there is anything that upsets Pakistan it is squeezing it when it comes to jihadis who it does not consider to be very harmful to Pakistan's interests," he said.
"Hardliners will say you can't trust Americans, they are ultimately out to screw us by aligning with enemy one [India] and that is what we have always warned about."
But a US official insisted the reward against Saeed had been planned for some time and there was nothing special about the timing.
"The announcement was made now because now was when the announcement was ready," the official said.
US authorities have been under domestic pressure to act against LeT and its senior command following a series of trials in the US during which the organisation's role in the Mumbai attacks and other acts of violence became clear.