The apparent involvement of the Inter-Services Intelligence Directorate (ISI), Pakistan's premier spy agency, in international attacks carried out by Islamic militants is to be revealed in a trial starting next week in the US.

A former member of Lashkar-e-Taiba (LeT), a violent Pakistan-based extremist group with close links to the Pakistani military, is expected to tell a court in Chicago that ISI officers were complicit in the November 2008 terrorist attacks in Mumbai, India's commercial capital, in which more than 160 people died.

The trial comes at a critical time, with relations between Islamabad and Washington at a new low following the death of Osama bin Laden.

The hearings could acutely embarrass the ISI, which is suspected by many in the US and elsewhere of protecting the man responsible for the 9/11 attacks.

The trial is also likely to fuel pressure in the US for the high levels of financial aid to Pakistan to be cut.

Official court documents in the case have so far played down the role of the ISI, still officially considered by the CIA and other American agencies as a key ally in the hunt for al-Qaida operatives in Pakistan. They avoid mentioning the Pakistani spy service by name, for example.

Spokesmen for the ISI have repeatedly denied any involvement in the Mumbai attacks to the Guardian.

The key witness in the hearings will be David Headley, an American-Pakistani LeT militant who has already told Indian intelligence services that he carried out the surveillance for the Mumbai operation while working for the ISI.

A report on Headley's interrogation last June by Indian investigators obtained and published by the Guardian in October revealed that the 51-year-old double agent gave his questioners a detailed picture of close co-ordination between at least lower-ranking officers in the ISI and the LeT militants.

Headley claimed he was trained by an ISI non-commissioned officer in clandestine techniques and that he kept his handler – named as "Major Iqbal" – up to date with planning for the raid. The ISI also provided training and facilities to the attack team as well as funding his own surveillance operations, said Headley, who changed his name from Dawood Gilani.

American prosecutors have now indicted "Major Iqbal" along with three senior members of LeT and an American alleged to be involved with the group.

Headley, a former bar manager who was arrested in October 2009 in Chicago while returning from Europe, has since co-operated with US authorities in return for a reduced sentence.

LeT – whose name means "war party of the pure" – has had a close relationship with the Pakistani security establishment since it was founded around 20 years ago. Militants from the group brought a new edge of extremism and brutality to violence in Kashmir and since 2001 have been found fighting in Afghanistan and Iraq, though in small numbers.

Following the Mumbai attacks and under great international pressure, Islamabad ordered the arrest of a series of senior LeT figures. But successive Pakistani leaders have refused overseas demands to shut down the group.

In the secret report, Headley is said to have told the Indian investigators he was recruited by the ISI in 2005 and that his handler had expressed enthusiasm when told which targets had been chosen for the Mumbai operation. Headley said too that he had informed his ISI handler about his involvement in operations that breakaway LeT factions planned to launch in Europe.

The only man named in the recent American indictment who will be on trial in Chicago is Tahawwur Rana, a Chicago-based immigration consultant who is charged with material support of terrorism. He denies the charges against him.

Two weeks ago the Guardian revealed that the ISI had been categorised with al-Qaida, Hamas, Lebanese Hezbollah and other militant Islamic groups in a 2007 "threat matrix" compiled to help interrogators at Guantánamo Bay.

Links with all these entities were indicative of involvement with terrorism, the document said. Intelligence reports used for assessments of detainees in Guantánamo Bay reveal scores of references by captured militants to ISI support for the Taliban in Afghanistan.

Documents dating from 2002 to 2005 qualify many of these references with the warning that any such assistance to insurgents fighting western troops was thought to be the work of "rogue" ISI operatives. From 2006, there are no such caveats as US analysts appear to have decided that assistance for some militant factions was official policy.