"There is no 'quid pro quo'," Pakistan's military spokesman Major General Shaukat Sultan said on Monday.
"Pakistan would never trade its sovereignty for any other issue."
The weekly New Yorker magazine quoted an unnamed US intelligence official linking the allegedly planned deployment of US troops in Pakistan to the Islamic republic's decision not to prosecute Abd al-Qadir Khan for supplying nuclear technology to Iran, Libya and North Korea.
"It is a quid pro quo," the US official told New Yorker reporter Seymour Hersch.
"We are going to get our troops inside Pakistan in return for not forcing [Pakistani leader Pervez] Musharraf to deal with Khan."
Pakistani and US troops, operating on separate sides of the 2500km Pakistan-Afghanistan border, have launched a fresh spring offensive against al-Qaida and Taliban fighters in a stepped-up bid to capture the elusive al-Qaida chief.
"Whatever decision we took about Khan was not the result of any deal, it was clearly a decision of the Pakistani government which was thought to be in our own national interest and probably the best that was required for Dr Khan"
Major General Shaukat Sultan,
Pakistan's military spokesman
Pakistani officials have repeatedly denied media reports that US troops will operate on its territory.
"Pakistan has said very clearly that on the Pakistani side there will be only Pakistani forces operating," Sultan said.
Musharraf pardoned Khan in early February after he confessed to selling nuclear secrets overseas and denied any involvement by Pakistan's military.
Musharraf's refusal to allow an international inquiry into the proliferation scandal has been criticised as an attempt to prevent exposure of any role by Pakistan's military.
"Whatever decision we took about Khan was not the result of any deal, it was clearly a decision of the Pakistani government which was thought to be in our own national interest and probably the best that was required for Dr Khan," Sultan said.
"Pakistan never trades its territorial sovereignty."