The Indian diplomat is said to be passionate about women's rights.
But Deputy Consul General Devyani Khobragade, 39, was arrested by New York police on Thursday for paying her maid US$3.30 (S$4.10) an hour.
Khobragade is in charge of political, economic, commercial and women's affairs at the Consulate General of India in New York.
The diplomat, who lives in a luxury apartment on New York's East Side, pleaded not guilty in Manhattan Federal Court to making false statements and visa fraud.
Prosecutors allege that she submitted a bogus visa application for her maid in which she said the maid would be paid almost US$10 an hour, the New York Daily News reported.
Khobragade was released on a US$250,000 bond. She also handed over her passport as a condition for bail.
"We do not at this time agree that my client is subject to prosecution," her lawyer, Mr Daniel Arshack said, arguing that Khobragade should enjoy diplomatic immunity.