Reports that a Pentagon official hired private contractors in Afghanistan and Pakistan to track and kill suspected insurgents is being investigated by the US Defense Department.

The New York Times reported late Sunday that it had received credible reports that contractors had been hired from private security companies to find militant leaders, whose whereabouts they would then pass on to US commanders, who would in turn send troops to fight and kill them.

The contractors, known to employ former CIA and Special Forces operatives, are not supposed to be used by the military in covert spy operations.

The allegations are now being investigated and centre on a former civilian employee of the Defense Department attached to the US Strategic Command.

The man, named as Michael Furlong, allegedly led the contractor-spy network, which relied on a network of informants.

Officials believe it has now been closed down.