package was addressed to the United Arab Emirates' consulate in Thiruvananthapuram.
The UAE has denied any knowledge of the package and said a former local employee had been arrested.
Local reports suggest another person has also been detained.
In a statement on Twitter on Tuesday, the UAE's embassy in the Indian capital Delhi said an investigation had been launched after the discovery was made.
"The [Emirati] authorities have stressed that the culprits who not only committed a major crime but also sought to tarnish the reputation of the UAE mission in India will not be spared," the embassy said.
"We remain committed to cooperating with Indian authorities in getting to the root of the crime."
The UAE's ambassador to India told the Gulf News newspaper that the former worker at the consulate had been dismissed several months ago "because he was not doing his job".
The chief minister of Kerala has faced calls from the opposition to resign over the case, although he has denied any involvement. A senior official in the state has been removed from his post, however.
According to a report by Reuters news agency, the lack of international flights because of the coronavirus pandemic has led to a fall in the amount of gold smuggling to India, as well as a rise in the price of gold.
Important Note:This website NEVER solicits for Money or Donations. Please beware of anyone requesting/demanding money on behalf of IRI. Thanks. Disclaimer: This website has NO affiliation with the Government-run site of Indian Railways. This site does NOT claim 100% accuracy of fast-changing Rail Information. YOU are responsible for independently confirming the validity of information through other sources.