A Pakistani intelligence official said Monday that an American in custody for killing two men was an undercover CIA contractor, in remarks likely to inflame a crisis with the United States.
Washington insists that Raymond Davis, who says he acted in self-defence, is a member of its Islamabad embassy's "administrative and technical staff" who has diplomatic immunity and should be released immediately.
But the unpopular government in Pakistan is under huge pressure from the political opposition not to cave in to US demands, with analysts even warning that the case could bring down the ruling Pakistan People's Party (PPP).
"It is beyond any shadow of a doubt that he was working for CIA," an official from Pakistan's Inter-Services Intelligence (ISI) agency told AFP on condition of anonymity.
"He's on contract. He's not a regular CIA guy, but he's working for CIA. That's confirmed," the Pakistani official said.
Pakistan's powerful intelligence services and military have been angered by accusations that they support Taliban and Al-Qaeda-linked networks fighting US troops in Afghanistan, and need to do more to eliminate Islamist militants.
Few in Pakistan believe Davis, who reportedly worked for a security contractor and had a background in US Special Forces, is a regular diplomat.
Police told AFP they recovered a Glock pistol, four loaded magazines, a GPS navigation system and a small telescope from his car, after the shooting on a busy street in the eastern city of Lahore on January 27.
A third Pakistani was struck down and killed by a US diplomatic vehicle that came to Davis's assistance. US officials denied Pakistan access to the vehicle and the occupants are widely believed to have left the country.
Washington has postponed a round of talks with Afghanistan and Pakistan, but Islamabad has said the matter is before the courts, although one compromise would be for the families to pardon Davis, in keeping with Islamic law.
On Monday, a judge at Lahore's top court ordered the government to appear on March 14 to respond to private petitions related to his incarceration, the law on diplomatic privileges and how Davis was allowed into the country.
The court last week deferred any judgment on whether Davis has diplomatic immunity and gave the foreign ministry until March 14 to determine his status.
US Senator John Kerry visited Pakistan last week to express regret and say Davis would face a criminal investigation at home, but hopes for a swift resolution now appear unlikely.
Local analysts suggested Pakistani intelligence had deliberately decided to complicate the case in order to put pressure on the government and the United States, with whom relations have been troubled over the war in Afghanistan.
"This would be seen as a kind of deliberate attempt to make the situation more difficult and complex to handle, and this provides additional material to the Islamic groups to adopt a hardline stance," said analyst Hasan Askari.
"These (intelligence) groups are not happy with the way America was building pressure on Pakistan on the war on terrorism.
"If it goes to the street and massive agitation, all political parties will find it a good opportunity to knock the PPP out of power," he said.
So sensitive is the case that Fauzia Wahab, spokeswoman for the ruling party, was forced to resign after saying that diplomats have immunity and that Davis had an "official" visa.
The PPP has also ditched former foreign minister Shah Mehmood Qureshi in a recent cabinet reshuffle.
Qureshi, who was still in his post at the time of the shootings, said last week that in his view Davis did not have full diplomatic immunity.
The Pakistani intelligence official said the Davis case had soured relations with the Central Intelligence Agency.
"Our relations with the CIA are now sort of pretty dicey. It has affected our relationship," the official told AFP.