The stunning revelations were made by Headley at the Metropolitan Correction Centre in Chicago when he met officials of India's National Investigation Agency (NIA), the Guardian reported Tuesday, basing its exhaustive story on classified Indian documents.
ISI's support came out in a 109-page report prepared following the interrogation of Headley, who was arrested last year for identifying targets in Mumbai to be attacked by the pro-Pakistan Lashkar-e-Taiba (LeT).
Headley has spoken about dozens of meetings between ISI officers and senior militants from LeT who carried out the savagery in Mumbai. Pakistan initially denied all links to the Mumbai massacre but later admitted that the only terrorist caught in Mumbai was indeed a Pakistani.
Over 160 Indians and foreigners were killed by 10 terrorists who sneaked into Mumbai from the sea. They targeted luxury hotels, a Jewish centre, a cafe, a hospital and the main railway station in Mumbai.
A key motivation for the ISI in aiding the attacks was to bolster militant organisations with strong links to the Pakistani state and security establishment who were being marginalised by more extreme radical groups, the media report quoted Headley as saying.
During questioning, the American claimed that at least two of his missions were partly paid for by the ISI and that he regularly reported to the spy agency.
The documents indicate that militants' supervision by the ISI was often chaotic and that its seniormost officers may have been unaware at least of the scale and ambition of the operation before it was launched.
Headley was interviewed for over 34 hours by Indian investigators in the US prison in June this year.
He has described how "a debate had begun among the terrorist outfits" and "a clash of ideology" had led to splits.
"The aggression and commitment to jihad shown by several splinter groups in Afghanistan influenced many committed fighters to leave (LeT)," Headley was quoted as saying.
"I understand this compelled the LeT to consider a spectacular terrorist strike in India."
Headley said the ISI hoped the Mumbai attack would slow or stop growing "integration" between groups active in Kashmir, with whom the agency had maintained a long relationship, and "Taliban-based outfits" in Pakistan and Afghanistan which were a threat to the Pakistani state, the Guardian report said.
"The ISI… had no ambiguity in understanding the necessity to strike India."
The aim of the agency was "controlling further split in the Kashmir-based outfits, providing them a sense of achievement and shifting… the theatre of violence from the domestic soil of Pakistan to India".
He also described a meeting with a "Colonel Kamran" from the military intelligence and a string of meetings with a "Major Iqbal" and a "Major Sameer Ali".
He claimed that he was given $25,000 by his ISI handler to finance one of eight surveillance missions in India.
ISI director general, Lt General Shuja Pasha, visited a key senior LeT militant in prison after the attacks "to understand" the operation.
The Guardian said this implies what many Western security agencies suspect -- that the top ranks of the agency were unaware of at least the scale of the planned strike.
Islamabad has denied its involvement in the Mumbai strike that seriously strained its relations with New Delhi.
An ISI spokesperson told the Guardian that the accusations of the agency's involvement in the Mumbai attack were "baseless".