Author says intelligence sources warned him that 'paid assassins from the Mumbai underworld' might try to kill him

Salman Rushdie has pulled out of Asia's biggest literary festival after being warned he is being targeted by killers sent by an underworld "don" based in the Indian city of Mumbai.

The Indian-born novelist was scheduled to appear in a session discussing one of his earliest works, the Booker prize-winning Midnight's Children, on the opening day of the festival in Jaipur in north-west India. He was also due to participate in two other events over the weekend.

At noon on Friday, the festival's organisers, who include the writer William Dalrymple, released a statement from Rushdie explaining that he had "been informed by intelligence sources … that paid assassins from the Mumbai underworld may be on their way to Jaipur to eliminate me".

Although 64-year-old Rushdie said he had "some doubts" about the reliability of the information, which came from sources in India, he added that nonetheless "it would be … irresponsible to my family, to the festival audience and to my fellow writers … to come to the festival in these circumstances".

The row over Rushdie's presence at the festival had been building for several weeks after a call was made by a local journalist to a senior conservative Muslim cleric, who had been unaware of the novelist's planned appearance at Jaipur. The cleric's description of Rushdie as having "hurt the sentiments of Muslims all over the world" was widely reported in India, and prompted calls for Rushdie to be denied a visa.

Rushdie has long been a controversial – though little-read – figure in the Islamic world. The 1988 publication of The Satanic Verses prompted a fatwa calling for his death from the Iranian leader Ayatollah Ruhollah Khomeini, forcing him to remain in hiding for many years.

Islamic groups had planned protest marches during the festival this week. One offered a reward for anyone who could hit Rushdie with a shoe.

On Friday, the British Indian writer Hari Kunzru caused further upset by reading a section from The Satanic Verses, which remains banned in India. Further attempts by writers to read from the book were stopped by organisers.

"Willy, Sanjoy: why did this happen?", Rushdie later asked Dalrymple and the festival's producer, Sanjoy Roy, protesting against their decision to prevent further readings from the banned work.

On Thursday night, organisers had been hopeful that some kind of compromise could allow Rushdie to attend.

Indian officials told the Guardian they feared action by groups run by Dawood Ibrahim, a well-known crime boss living in exile, who they believe is closely linked to the Pakistani security establishment.

Security experts, however, described the idea of killers being dispatched by organised criminals to kill the author as "extremely far-fetched" .

The struggling Indian government, led by the centre-left Congress party, has made no public statement on the row. There are major state elections in the coming weeks in which the votes of Muslim communities will play a critical role.

The festival's organiser, Roy, said there was a need in India "to question … why we continue as a nation to succumb to one pressure or another". "This is a huge problem for Indian democracy," Roy said.

Rushdie previously attended the festival in 2007, and frequently visits the country of his birth.

Dalrymple said: "Salman is a writer of enormous breadth. His … passionate engagement with Indian Islamic history shows he is far removed from the Islamophobe of myth. This is a great tragedy, and we hope he will be able to come back again in the future."

Rushdie posted a message on Twitter, saying: "Much support and sympathy: thanks, everyone. Some say I let people down: sorry you feel that. Some Muslim hate tweets: pathetic."

Sheikh Amir Ahmed, a 41-year-old hotelier who travelled for 12 hours by train to spend the weekend at the festival, said the row had been stoked by unscrupulous politicians.

"This anger is not felt by the common man. I am Muslim, and with my fellows we are not too concerned. I would have been happy to see him here. I am a businessman, but in my heart I am a poet," he said.

The event features more than 250 writers, and more than 60,000 people are expected to attend sessions featuring Indian and international writers. Other speakers include the geneticist Richard Dawkins, playwrights David Hare and Tom Stoppard, the novelists Michael Ondaatje and Ben Okri, and the US talk show host Oprah Winfrey.