Chinese hackers have managed to take out the computer system on the Indian Navy's Eastern Command.
The hackers planted malware on the system, which is based around the city of Visakhaptnam, which sent sensitive data to IP addresses in China.
The Indian Express reported how India's first nuclear missile submarine, INS Arihant, was running trials at the facility and might have got the bug.
The virus had reportedly created a hidden folder, collected specific files and documents based on certain "key words" it had been programmed to identify.
It remained hidden on the pen drives until they were put in computers connected to the internet, after which the bug quietly sent files to the specific IP addresses.
It is not clear how much was taken in the hacking raid, or if the malware operated like Stuxnet and needed to be installed within the system by a spook first.
So far, India has arrested six officers for procedural lapses which led to the breach. It is not clear if any of them will later face spying charges.
India's navy stores sensitive data in standalone computers which are not connected to the web. However, they are also not supposed to have ports or access points for flash drives or external storage devices.