The US has deducted $55 million out of the $156 million bill set by Pakistan for rendering its military services to fight against Taliban and Al Qaeda in volatile bordering tribal areas adjacent to war-torn Afghanistan.
Shaukat Tarin, a financial advisor in the prime minister's office, said the US had "changed the format" for money released under the Coalition Support Fund (CSF) for Islamabad, resulting in a "massive" deduction.
Pakistan, a key US ally in the fight terrorism, has mobilised its more than 100,000 troops in tribal areas to contain Islamic militants launching cross-border attacks on international forces in Afghanistan, and bills US for the expenditure.
The cut in its reimbursements is a setback to the civilian government led by President Asif Ali Zardari, widower of assassinated former Pakistani premier Benazir Bhutto.
Tarin said Islamabad had taken the matter of the deducted money with Washington.
Pakistan joined the US-led international alliance against terrorism after the Sep 11, 2001 attacks on the US, with Islamabad getting some $297 million every year since 2003, in the form of Foreign Military Grants to quell the Taliban militancy.
But the authorities in Washington have said repeatedly that Islamabad was not doing enough to control Islamic insurgency in its ungoverned tribal region.
The new US government, led by President Barack Obama, has vowed to focus more on Pakistan in its policy to defeat Taliban and Al Qaeda in Afghanistan. In its efforts, the new administration would link Pakistan's aid with the security in the border region in Afghanistan, the White House said in a policy statement last week.
Pakistan, which has recently avoided default by obtaining a $7.6 billion loan package from the IMF, is relying heavily on US to revive its economy.
The US has so far provided between $10 and $11 billion of aid for social development as well as in form of military aid. But Pakistan says it has suffered financial losses many times more than it has collectively received aid from American and its western allies after becoming front line state in the ongoing war against terrorism.