Several news organizations, including CBS, The New York Times and Los Angeles Times learned of the alleged betrayal weeks ago. But the agencies agreed to withhold reporting it until now because of U.S. attempts to shore up the intelligence losses.
Chalabi was once held in high enough esteem to sit behind first lady Laura Bush during the state of the union address. He is alleged to have met in Baghdad with a top Iranian agent and disclosed to him that the U.S. had cracked Iran's secret codes and was eavesdropping on all Iranian intelligence messages.
Chalabi told the Iranians he learned about the code intercepts from an American who was "drunk" when he told him. What followed was a frantic exchange of messages between the Baghdad Iranian agent and his headquarters in Tehran all of which were intercepted and decoded by U.S. agents back here.
That led to a raid last month on Chalabi's Baghdad headquarters and an end to his hopes of joining in the new leadership coalition in post-war Iraq.
Today Chalabi denied the leaks, calling the accusations "false" and "stupid."
Chalabi has always had a history of mixed reviews from U.S. officials. The CIA blames him for some of the bad intelligence about weapons of mass destruction in Iraq. However, the Pentagon has credited Chalabi with information that led to a quick victory over Saddam Hussein.
"We are getting some extremely valuable information from a whole range of Iraqi groups, including Mr. Chalabi's," said Deputy Secretary of Defense Paul Wolfowitz.
The Pentagon says no one there has been officially questioned as yet. Other officials, however, hint the leak investigation is making good progress.
On Tuesday, CBS News reported that Chalabi recently told an Iranian intelligence official that the U.S. had cracked the codes, allowing the U.S. to read communications on everything from Iran's sponsorship of terrorists to its covert operations inside Iraq.
Chalabi has denied passing any classified information to Iran, and Chalabi supporters have asserted that the CIA is out to destroy the former exile.
In Najaf, Iraq, Chalabi said Wednesday it was "false" and "stupid" to assert he had tipped Iran to the code break.
"Where would I get this from?" he asked. "I have no such information. How would I know anything about that? That's stupid from every aspect."
Chalabli was once touted as a strong candidate to lead postwar Iraq by some White House and Pentagon officials, but he has suffered a rapid fall from the grace, in no small measure because the U.S. learned he was giving secret information to Iran.
On May 20, Iraqi police backed by American soldiers raided Chalabi's Baghdad home and offices. Chalabi is a controversial figure who provided the Bush administration with prewar intelligence on supposed weapons of mass destruction in Iraq -- including the now-discredited information about mobile weapons labs.
After the raid on his home and offices, 60 Minutes Correspondent Lesley Stahl reported that the U.S. had evidence Chalabi has been passing highly classified U.S. intelligence to Iran.
The New York Times, citing U.S. intelligence officials, said the U.S. learned of Chalabi's activities when an Iranian intelligence agent in Baghdad sent a coded message to Tehran reporting that Chalabi had told him the U.S. had broken the codes.
According to the message, which was read by the U.S., Chalabi claimed to have gotten the information from an unnamed American who was drunk, the Times said.
Chalabi is still active and visible on the scene in Iraq where he is a member of the Iraqi Governing Council.
Over the Memorial Day weekend, Chalabi was reportedly involved in negotiations to maintain a faltering ceasefire in the city of Kufa between U.S. military and radical Shiite cleric Muqtada al-Sadr.