Khushboo, who uses one name, said representatives of the British men's magazine had called her to apologize for the photograph, which appeared in the publication's inaugural Indian edition this month.
The photograph showed a woman in a transparent bra and panties and was clearly doctored and stamped with the message "100 per cent fake." A quote beneath the photograph declared her a virgin, but made clear she was no sexual innocent.
"The photo and language used are in bad taste," she said over telephone from Chennai. "I'm really upset and angry ... I'm not going to let them go scot free."
"The damage has already been done. My lawyers will file a case next week," she said.
Khushboo's lawyer, R. Karthikeyan, said the actress would file a defamation suit and lodge an obscenity complaint against the magazine's British publishers and the editors of the Indian edition. Each charge carries a maximum penalty of two years in prison.
"They may say it's 100 percent fake, but will a common man know?" said Karthikeyan.
"The foreign publishers can't escape liability. It's published in India and against an Indian citizen." Xavier Collaco, the publisher of Maxim's Indian edition, said the magazine had no intention of belittling Khushboo, adding the magazine was meant to be an "overall light read for men." "We'd like this to be resolved amicably," he said. Simon Clays, Maxim's international manager in London, declined immediate comment.
Khushboo said Maxim's publishers probably thought she was an easy target after she made headlines in September for telling an Indian magazine that society needs to rid itself of the expectation that brides be virgins.
She later apologized for the remarks, which offended sections of this deeply conservative society.
Local editions of Western magazines are increasingly common in India, though sexual content is scaled back for more conservative Indian readers.