India's federal anti-terror agency said on Sunday it had arrested a resident of Kashmir who it accused of conspiring with the driver of a car that exploded in Delhi last week, killing eight people and wounding at least 20 others.

The National Investigation Agency (NIA), the country's counter-terrorism law enforcement body, said the alleged attacker and the second suspect were both from Indian-administered Kashmir, where police have carried out sweeping raids in recent days.

Announcing "a breakthrough" in the investigation, the NIA said in a statement it had arrested Amir Rashid Ali, "in whose name the car involved in the attack was registered."

He had "conspired with the alleged suicide bomber, Umar Un Nabi, to unleash the terror attack," it added, without specifying any possible motive.

Nabi, a resident of Kashmir, was an assistant professor in general medicine at a university in the northern state of Haryana, according to the counter-terrorism agency, which said it had seized a vehicle belonging to him.

Ali had come to Delhi to "facilitate the purchase of the car which was eventually used as a vehicle-borne Improvised Explosive Device (IED) to trigger the blast," the NIA said.

The explosion on Monday took place near a busy metro station close to the landmark Red Fort in the capital's Old Delhi quarter, where the prime minister delivers the annual Independence Day address.

A hospital official has said the blast killed 12 people. It was unclear whether the toll included Nabi. (AFP/Reuters)