The authorities in Delhi have taken legal advice over whether to bring charges against the novelist and activist after she said Kashmir had never been an "integral part of India".
"Even the Indian government has accepted this. Why are we trying to change this now?" she added, at a public meeting, at which one of the other speakers was veteran separatist leader, Syed Ali Shah Geelani.
The comments of Ms Roy were immediately seized on by political opposition, which demanded she be charged. Law minister, Veerappa Moily, said while India enjoyed freedom of speech, "it can’t violate the patriotic sentiments of the people".
But Ms Roy, writing from Srinagar, the largest town in the Kashmir valley and the scene of numerous deaths of protesters this year, said she had only given voice to what millions of people in Kashmir had been saying for a long time.
"Pity the nation that has to silence its writers for speaking their minds," she said. "Pity the nation that needs to jail those who ask for justice while communal killers, mass murderers, corporate scamsters, looters, rapists and those who prey on the poorest of the poor, roam free."
Ms Roy’s comments come after the deaths of dozens of protesters in the Kashmir valley since new demonstrations for autonomy erupted in June. The once-independent kingdom has been fought over since 1947 when its Hindu ruler decided the Muslim-majority state should join independent India, rather than the newly-created Pakistan. India and Pakistan have gone to war over the area on three occasions.
An insurgency that gathered pace after India rigged elections in 1987, combined with an unrelenting response from the Indian authorities that has transformed Kashmir into one of the most militarised places on the planet, has led to the deaths of more than 70,000 people. Most Hindus were forced out or fled.
Ms Roy added: "I spoke about justice for the people of Kashmir who live under one of the most brutal military occupations in the world, for Kashmiri pandits who live out the tragedy of having been driven out of their homeland; for dalit soldiers killed in Kashmir whose graves I visited on garbage heaps; for the Indian poor who pay the price of this occupation in material ways and who are now learning to live in the terror of what is becoming a police state."
Her comments come as Indian authorities have dispatched a team of interlocutors to speak with separatists in Kashmir, among them Mr Geelani, whose calls for strikes often brings Srinagar to a standstill.
The state’s chief minister, Omar Abdullah, has seen the momentum slip from his hands. He has also been widely criticised for failing to control the violence.
The threat to charge Ms Roy comes after the campaign group, Reporters without Borders, listed India in 122nd place in latest its annual press freedom report. It said the position of the world’s largest democracy had slipped 17 places, partly due to the situation in Kashmir where "security forces… sometimes crack down hard on media".
Ms Roy last night received the support of English PEN, which campaigns for free expression worldwide. The group’s president, Lisa Appignanesi, said: "Since June, Kashmiri journalists and broadcasters attempting to report on unrest in Indian-administered Kashmir have been subject to violence and gagging. Arundhati Roy has now stepped forward to draw the world’s attention to the plight of Kashmiris.
"The truth of what is happening in Kashmir needs to be told," she said. "Brutality by the state and the silencing of reporters is no option for a modern India."