India says the Ford Foundation, one of the largest U.S. philanthropies, cannot give money to Indian organizations without approval from the Indian government.
The Home Ministry placed the charity on a "watch list" to verify funds are used for "bona fide welfare activities without compromising on concerns of national interest and security."
The measure was taken following a complaint from India's western Gujarat state government that the foundation was funding Sabrang Trust, a local non-governmental organization run by Teesta Setalvad, a critic of Prime Minister Narendra Modi.
Gujarat said the foundation's funding of the NGO was "interfering in the internal affairs" of India and was also "abetting communal disharmony."
Setalvad has been critical of Modi's handling of religious riots in his home state of Gujarat.
In 2002, Hindu-Muslim riots killed at least 1,000 people in Gujarat where Modi was then the chief minister. He was accused of looking the other way, but was cleared of any direct involvement.
The New York-based Ford Foundation said on its website that its mission is to support "visionary leaders and organizations on the frontlines of social change worldwide." The foundation was created with gifts and bequests by Edsel and Henry Ford and is "entirely separate" from the Ford Motor Company.
Earlier this month India froze the Indian bank accounts of the environmental giant Greenpeace for "prejudicially" affecting India's economic interests.
