The Senate unanimously agreed on Monday to make $1.2 million in military training aid to Malaysia conditional on US Secretary of State Colin Powell being persuaded the southeast Asian country supports and promotes religious freedom, including for Jews.
"It doesn't make any difference to us. We don't really need that money," Mahathir said on Tuesday at his office in the administrative capital, three days before he steps down after 22 years in power.
Malaysia prides itself on being a peaceful multicultural nation, with a 60% Muslim majority and large non-Muslim Chinese and Indian minorities. The country has few Jews.
The Powell provision was added to an $18 billion foreign aid spending bill, which the US Senate is expected to approve this week.
Although the amount was small, aides said the move should send a message to Malaysia's government.
US President George Bush said he rebuked Mahathir at an Asia-Pacific summit in Bangkok a week ago.
But the Malaysian leader did not remember it like that.
"It's the biggest lie. If he had rebuked me, I'm quite sure I would have rebuked him also," Mahathir was quoted as saying by the state-run news agency Bernama at the weekend.
The 78-year-old provoked sharp criticism from Western governments and Israel this month for comments at a meeting of the world's Islamic leaders.
"The Europeans killed six million Jews out of 12 million. But today, the Jews rule this world by proxy," he said.
"The Europeans killed six million Jews out of 12 milion. But today, the Jews rule this world by proxy"
Malaysian prime minister
His words evoked old demons of European anti-semitism and western governments, including Israel, joined a chorus of condemnation.
But the set-piece speech by Mahathir mainly castigated his fellow faithful for centuries of backwardness and introspection in the face of modernisation.
He replied to critics at the time with accusations of double standards on what could be said about Jews and Muslims, and was equally unrepentant on Tuesday about US senators.
"The US could be shooting itself in the foot when it wants cooperation in the war on terror"
analyst, Australian Defence College
"They want to dictate (to) the world. We are all being run by the US Senate, it's no good having our own elections.
"We'd better [vote] in the US elections and we can be sure we get the right representatives," he said, laughing.
The US House of Representatives passed its version of the foreign aid spending bill in July, so it does not contain any aid restriction. The two bills will have to be reconciled.
'Risky' US gesture
Some analysts believe Washington could hurt its own interests if it alienated Malaysia through this largely symbolic gesture.
"It is a model of moderate Islam," said Brad Glosserman of the Pacific Forum CSIS thinktank based in Hawaii, adding that Malaysia served as an example for Muslim participation in government beyond Southeast Asia.
And Carl Thayer, analyst at the Australian Defence College in Canberra, said undermining the military-to-military relationship, which was one of the strongest ties between the two countries, was an odd way to treat an ally in the so-called war on terror.
"The US could be shooting itself in the foot when it wants cooperation in the war on terror," he said.