A major Indian trade delegation headed to Iran on Friday to explore "huge" commercial opportunities created by US-led sanctions against the Islamic republic over its disputed nuclear plans.

The mission sees India walking a diplomatic tightrope as it seeks more business from Iran while managing a growing partnership with the United States and maintaining good relations with Israel, a key arms supplier.

US lawmakers and pro-Israel groups have accused New Delhi of undermining American and European efforts to isolate Tehran and force it to abandon its nuclear programme.

An attack that severely injured an Israeli diplomat in New Delhi last month -- blamed by Israel on Iran -- has further complicated matters.

The trade team will be in Iran until March 14 and expects "a lot of business" from the trip, said Anand Seth, spokesman for the government-backed Federation of Indian Export Organisations, which is leading the delegation.

"It's a big market for Indian exporters," Seth told AFP.

But the federation declined to name the firms taking part in the visit and a source close to the delegation said the companies involved were worried about potential US reprisals.

The delegation, of around 70 companies and top government officials, wants to boost exports to improve India's trade balance with Iran, which runs at a huge deficit as the Islamic republic supplies 11 percent of its oil imports.

Under the plan, India would pay for up to 45 percent of those imports in rupees that would stay in the country and be used in turn to fund Iran's purchases of Indian goods.

The move would sidestep Western sanctions that have made it difficult to continue paying for Iranian crude in dollars, Seth said.

Indian Commerce Secretary Rahul Khullar said this month there are "huge opportunities" in Iran for exports such as textiles, tea, rice, wheat and other foods, as well as pharmaceuticals, auto components and factory machinery.

Iran is India's second-largest oil supplier after Saudi Arabia, and while India has diversified to cut its dependence on the country in recent years, New Delhi says replacement of "all Iranian oil imports" is not "a realistic option".

"From India's side, their stand is very much a case of practicality. Iranian oil is not easily replaceable," Subhash Agrawal, political analyst and editor of India Focus, told AFP.

"But America sees India's move as a disappointing signal for their strategic friendship," he said. "Also this is US election year and for Americans, Iran is the number one security issue. They're hyper-sensitive on the sanctions issue."

India has said it will abide only by UN sanctions and will not implement others imposed unilaterally by the United States and European Union.

Indian officials also insist recent events should not overshadow the country's historic "rich civilisational" ties with Iran, seen in New Delhi as a vital regional counter-balance to arch-rival Pakistan.

India, which has one of the world's largest Muslim populations, is also uneasy about joining a US-led drive against the Islamic republic that could have domestic political repercussions, analysts say.

Earlier this week, the Indian embassy in Washington said accusations that New Delhi was playing sanctions spoiler "overlook the imperative of India's dependence on oil imports from Iran to serve the energy needs of its people."

More than 400 million Indians do not "have access to commercial energy", it said.

Two-way trade between India and Iran is around $13.7 billion annually, of which Indian exports account for just $2.74 billion, but Indian experts estimate bilateral trade could reach $30 billion a year by 2015.

Annual trade with Israel currently stands at $5 billion and the two countries are negotiating a free-trade agreement.

The investigation into last month's bomb attack on an Israeli diplomat resulted in its first arrest this week.

Police detained a 50-year-old Indian freelance journalist who is thought to work part-time for the Iranian news agency IRNA. Foreign nationals are suspected of being behind the bombing.

A senior Delhi police source, speaking to AFP on condition of anonymity, said investigators probing the case "at this point of time cannot say for sure who are these foreign nationals".