Lapses :The "most wanted" list was removed from the website of the Central Bureau of Investigation after news of the second mistake emerged.
"We have an inmate called Feroze Khan in the Arthur Road jail," the Times of India newspaper quoted the inspector general of prisons, Surendra Kumar, as saying.
Mr Khan's lawyer Farzana Shah told the BBC that he had been arrested on 5 February last year and had been in jail since then.
In a statement, the CBI said "a preliminary inquiry has revealed a lapse regarding inclusion of Feroz Abdul Rashid Khan in the list".
An inspector has been suspended, two officials transferred and an inquiry launched into the lapse, the statement said.
Doubts were raised on Wednesday when it emerged that Wazhul Kamar Khan, who is also accused of involvement in a 2003 Mumbai train bombing, had already been released on bail.
India gave the list to Pakistan at the end of March when the home secretaries of the two countries met for talks.
India blames Pakistan-based militant groups, such as the banned Lashkar-e-Taiba (LeT), for carrying out many of the attacks in India in recent years.
It also accuses Pakistan of providing sanctuary to former Mumbai underworld don Dawood Ibrahim. Mr Ibrahim and LeT founder Hafiz Saeed are among those named on the most-wanted list.
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