Gupta had been summoned to New Delhi on the pretext of discussions on the eight-nation South Asian Association for Regional Cooperation set to begin in Bhutan on Wednesday.
Officials said she had been under surveillance for more than six months before
Indian authorities decided to arrest her.
An employee of the embassy for nearly three years, Gupta was working in the information service of the embassy. She was alleged to have passed on information from the Islamabad head of India's external intelligence service to her Pakistani contacts.
RK Sharma, the station head of the intelligence service in Islamabad, was also under scrutiny in connection with Gupta's arrest.
KC Singh, a former Indian foreign secretary, told the Times Now news channel that Gupta would in theory have had limited access in her role in the information wing.
"More damage is done if it is someone in the political wing," he said.
"However it is a penetration. We earlier had penetration by the US and East Europeans, but this is a first from Pakistan."
The incident comes as the foreign ministers of India and Pakistan signalled that their prime ministers would meet this week for talks seen as critical for resuming a peace dialogue between the two nations.
The two nuclear-armed nations have had a rocky history, having fought three wars since winning independence from British colonial rule in 1947.
A previous round of peace talks were suspended in November 2008 after armed men launched an attack in the heart of Mumbai, India's sprawling financial capital, killing 166 people, and wounding more than 300 others.
The foreign ministers from both countries began a new round of talks in February, in an attempt to bring a thaw to chilly relations.