Government spokeswoman Sherry Rehman said there are "probably" still individual agents whose ideological convictions were formed in the 1980s, when the ISI intelligence agency marshaled Islamic warriors to battle Soviet troops in Afghanistan with U.S. support.
Such agents "act on their own in ways that are not in convergence" with Pakistan's interests or policies, Rehman said. "We need to identify these people and weed them out."
The statement was the first acknowledgment by Pakistan's new government that there may be pro-Taliban operatives in the intelligence service. But in a reflection of the sensitivity of the issue, Rehman later changed her statement to maintain the problems at ISI were in the past.
The conflicting comments will do little to build confidence in the 4-month-old administration's efforts to tackle Islamic extremism - a huge challenge facing Pakistan's first civilian-led government after eight years of military rule under President Pervez Musharraf.
Rehman's initial statement came after mounting U.S. and Indian allegations that ISI operatives are helping militant groups involved in the growing insurgency in Afghanistan.
The New York Times reported Friday that American intelligence agencies concluded ISI agents were involved in the July 7 embassy attack in the Afghan capital, which killed about 60 people.
The Times, citing unidentified U.S. government officials, said the conclusion was based on intercepted communications between Pakistani intelligence officers and militants who carried out the attack.
Foreign Ministry spokesman Mohammed Sadiq described the report as "total rubbish," insisting there was no evidence linking the ISI to the Kabul bombing.
"The foreign newspapers keep writing such things against ISI, and we reject these allegations," he said.
Afghan leaders have long maintained the ISI is backing the Taliban-led insurgency, and Afghanistan's spy agency accused its Pakistani counterpart in a recent attempt to assassinate Afghan President Hamid Karzai.
Last week, India alleged that "elements of Pakistan" were behind the blast at its Kabul embassy, putting the two nations' four years of peace efforts "under stress." The nuclear-armed neighbors have fought three wars in the past 60 years.
"Pakistan views the current situation as untenable," Seth Jones, a Middle East expert for the RAND Corporation told CBS News. "There's an Afghan government that is closely tied with India, Pakistan's mortal enemy. That situation is simply untenable."
The Pakistani army spokesman, Maj. Gen. Athar Abbas, described the Times report as a "most unkind" swipe at a partner in the U.S.-led war against extremist groups. He suggested it was designed to pressure Pakistan to act against militants.
Pakistan also objects to repeated airstrikes on suspected militant sites in the Pakistani tribal areas near Afghanistan, apparently carried out by CIA drones based across the border.
CBS News has learned that the U.S. military, for the past four months, has routinely from Pakistani authorities on attacks carried out in Pakistan's border region targeting al Qaeda and Taliban suspects, for fear the information could be leaked to militants, according to a high-level European defense official in Islamabad.
The official told CBS News' Farhan Bokhari the Bush administration is demanding a comprehensive revamp of Pakistan's ISI before Washington will resume full intelligence cooperation with its valuable Asian ally.
In the latest secret operation, Midhat Mursi al-Sayid Umar, also known as Abu Khabab al-Masri - a leading al Qaeda chemical and biological weapons expert, early Monday morning at a remote location in Pakistan's Waziristan region, which borders Afghanistan.
"Information of this attack was shared very late with Pakistan. This was a case where the U.S. did not want to alert the Pakistanis in advance because of concerns over information leaks," said the European official, whose country has contributed troops to the NATO coalition force in Afghanistan. He spoke to CBS News on condition of anonymity due to the sensitivity of the information.
Pakistan notes that more than 1,000 personnel in its security forces have been killed in battles with Islamic militants since 2001. ISI staff and even their children were targeted by suicide attackers last year.
Musharraf, who allied Pakistan in Washington's fight with al Qaeda after the Sept. 11 attack on the U.S., has insisted the intelligence service has severed its ties with the Taliban.
That was reiterated by Abbas, who said it was impossible for ISI agents to become rogue elements without detection because all the agency's officers are rotated in from the army for tours of two to four years.
American officials acknowledge the sacrifice of Pakistani troops as well as the ISI's crucial role in rounding up al Qaeda suspects such as Khalid Sheikh Mohammed, alleged mastermind of the Sept. 11 attack.
But suspicions remain.
Prime Minister Yousuf Raza Gilani this week urged President Bush to share more intelligence so that Pakistani forces can target militant leaders.
But Pakistan's defense minister said Bush had complained to the prime minister that Pakistani intelligence was giving militants advance warning of predator missile strikes, reports CBS News national security correspondent David Martin.
A U.S. counterterrorism official, who agreed to discuss the issue with the Associated Press only if not quoted by name, said there is particular concern about support for the network of Jalaluddin Haqqani, a jihadi commander wanted by the U.S. military.
The Times report cited American officials as saying the embassy attack was probably carried out by Haqqani's network.
Talat Masood, a military analyst and former Pakistani general, said he doubted the ISI had a hand in the embassy bombing because of the serious international repercussions of being caught.
However, he said it was possible there is a "tacit" policy of cooperating with militants like Haqqani, because his fighters are focused on Afghanistan and are not battling Pakistani troops.
Rahul Roy-Chaudhury of the International Institute for Strategic Studies in London said individual ISI agents may be "making their own decisions" because the government hasn't formulated a clear strategy to counter militants.
He said the ISI views itself as the "final arbiter" of Pakistan's relations with Afghanistan and India and is reluctant to give up ties with militants that could be vital if NATO and the U.S. fail in Afghanistan.
"Do they want to give up the option that no one else has in terms of links to the extremists?" Roy-Chaudhury said. "It's these kind of views that make elements in the ISI different (from other spy agencies) - and more dangerous or more powerful, depending on how you see it."