The money was found in possession of Sazia Begum, who was travelling by a private vehicle from Jammu to Srinagar along with her family members and fiancÚ Mushtaq Ahmed Dar, during a check at Kud, Director General of Police A K Suri said.
Begum revealed that she had received the money from Pakistan-occupied Kashmir-based Hurriyat leader Altaf Kadri at a hotel in Bagh Bazar in Kathmandu, Suri said.
"This money was to be delivered to Yasin Malik in Srinagar," he added.
The JKLF leader, however, denied any links with Begum.
Malik said he would quit the separatist movement if it was proved that Begum had "ever seen me, leave alone talk to me".
Mushtaq, who has also been arrested, is a former JKLF spokesman hailing from Batmaloo area of Srinagar. He was released in 2000 after a four-year detention and continues to be an active member of the JKLF, Suri said.
The two have been booked under the Prevention of Terrorism Ordinance.
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