I contacted my host, and this is what they found out:
On checking the error logs I could see that the issue was due to the mod_security rules added on the server and you can verify it from the logs apsted below,
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[Tue Apr 15 19:55:42 2014] [error] [client 67.4.198.145] ModSecurity: Access denied with code 406 (phase 2). File “/tmp/20140415-195541-U03G-cc6uisAAGSqfo4AAADC-file-m3xAOQ” rejected by the approver script “/usr/sbin/clamscn.pl”: 0 Unable to parse clamscan output [ERROR: Can’t open file or directory] [file “/usr/local/apache/conf/modsec-maldet.conf”] [line “17”] [id “99999”] [hostname “nissidesign.com”] [uri “/new/wp-admin/media-new.php”] [unique_id “U03G-cc6uisAAGSqfo4AAADC”]
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We have now whitelisted the domain from mod_security rules and this will resolve the wordpress issue.
This DID solve the problem.