Delhi not convinced there is a case against Khobragade, whose was arrested on visa fraud charges and strip-searched

India has urged the US to drop charges of visa fraud against one of its diplomats, hours after the prosecutor handling the case issued a hard-hitting statement accusing Delhi of turning a blind eye to exploitation of domestic workers serving its envoys overseas.

The arrest of Devyani Khobragade, the Indian deputy consul general in the US, and her subsequent strip-search has led to a fierce row, threatening to further complicate already testy relations between the two nations.

Khobragade is accused by prosecutors of lying on a visa application about how much she paid her housekeeper, an Indian national who travelled from India to work and live with her in New York. The diplomat is alleged to have paid the maid less than $3 (£2) an hour, well below the legal minimum wage, and made her work "well in excess of the 40-hour week".

Salman Khurshid, India's foreign minister, said Delhi was not convinced there was a case against Khobragade.

"The worst that can be said about her is that she did not comply with the amount that was supposed to be paid under the law. I don't think that justifies treatment as a common criminal. We have asked for an explanation for what has happened … and we have asked for the cases to be dropped and withdrawn immediately," Khurshid said.

Officials said an expression of regret from John Kerry, the secretary of state, in a telephone call to India's national security adviser on Wednesday was considered insufficient.

Kamal Nath, India's parliamentary affairs minister, called for the US to "withdraw all charges, clearly apologise and accept they have made a mistake. Only then will we be satisfied."

The story has dominated media in India in recent days, reflecting and fuelling public outrage. India has implemented a range of retaliatory measures, ranging from demanding to know the salaries paid to Indian staff in US diplomats' households to removing security barriers outside the sprawling US embassy in Delhi.

In an email that has been widely reported in India, Khobragade said she was arrested in front of her children, strip-searched and kept in a cell with drug addicts. "I broke down many times as the indignities of repeated handcuffing, stripping and cavity searches, swabbing, in a holdup with common criminals and drug addicts were all being imposed upon me despite my incessant assertions of immunity," she wrote.

Manmohan Singh, the Indian prime minister, has described her treatment as "deplorable".

But Preet Bharara, the US federal prosecutor responsible for the case against Khobragade, issued a rare statement denying that the diplomat had been handcuffed or otherwise restrained, or arrested in front of her children, and saying she had been treated well. Bharara said the diplomat was searched, but this was "standard practice for every defendant, rich or poor, American or not".

He said: "One wonders whether any government would not take action regarding false documents being submitted to it in order to bring immigrants into the country … And one wonders why there is so much outrage about the alleged treatment of the Indian national accused of perpetrating these acts, but precious little outrage about the alleged treatment of the Indian victim and her spouse."

Bharara said Khobragade, who has pleaded not guilty, was given coffee and offered food. She was "fully searched" in private by a female deputy marshal, which he said was a standard safety practice that all defendants had to undergo.

Indian diplomats abroad routinely import domestic servants from home. Almost all middle-class households in India employ at least one, and often several, members of staff who will undertake tasks from cleaning and cooking to child care and driving.

With few Indian diplomats paid wages that would allow them to legally employ local staff to perform such functions in postings in the west, the practice has long been for Indian workers to be flown out and paid rates that would be generous at home.

"In fact, the Indian government itself has been aware of this legal issue, and that its diplomats and consular officers were at risk of violating the law," Bharara said. "The question then may be asked: is it for US prosecutors to look the other way, ignore the law and the civil rights of victims … or is it the responsibility of the diplomats and consular officers and their government to make sure the law is observed?"

In response to Bhahara's statement, a spokesman for India's ministry of external affairs said: "We need to keep in mind the simple fact that there is only one victim in this case. That victim is Devyani Khobragade, a serving Indian diplomat on mission in the United States."

There have been several previous incidents involving senior Indian diplomats in the US and domestic staff brought from India. In 2011 the Indian consul general ambassador, Prabhu Dayal, was accused by his maid of forced labour and sexual harassment, charges he called "complete nonsense" and that were later dropped.

A year earlier a US judge recommended that an Indian diplomat and her husband pay a maid nearly $1.5m in compensation for being forced to work without pay and suffering "barbaric treatment" in their luxury Manhattan apartment.

The outrage in India has been fuelled by politicians' unwillingness to seem out of step with public mood with a general election only months away.

Relations between the US and India have long been rocky, though steadily improving since a nadir in the 1970s. Barack Obama received a warm welcome on his visit in 2010. However, there remains deep suspicion of Washington in Delhi, and in India more generally, and many US officials see India as a difficult partner. It is unlikely that this latest rift will do long-term damage.

Khobragade will now be transferred to India's mission to the United Nations, Indian media reports suggest. It is unclear how such a move might affect her immunity from prosecution, and a UN spokesman said on Wednesday evening it had not received a necessary transfer request.

The diplomat, freed on payment of a $250,000 bond, could face a maximum sentence of 10 years if convicted of visa fraud, and five years for making a false declaration.

"We are hurt that a friend should behave in such a way. No Indian diplomat has been treated in such a way for a very long time. It is inexplicable," one Indian official said.

The US state department disputes Khobragade's immunity, saying hers is limited only to acts performed in the exercise of consular functions.

Khurshid sounded a conciliatory note, saying: "People want to get back on a normal keel as soon as possible and not allow this very unfortunate incident to continue to fester."

Michael Kugelman, of the Woodrow Wilson International Centre in Washington, said the spat was unlikely to harm bilateral relations in the long-term. "The partnership is invested with too many shared objectives and interests to be jeopardised by an isolated incident like this," he said.

But Kugelman added: "The Khobragade affair does reinforce a view embraced by many in Washington: a nation with great-power aspirations continues to succumb to a victimhood mentality not typically associated with superpowers, whether aspiring or actual."