"All of this is false," the Islamic republic's top national security official Hassan Rowhani said. "We have no relations in regard to intelligence."
The New York Times said on Wednesday that Chalabi, who has fallen out of favour with Washington, tipped off an Iranian intelligence official that Washington had broken Iran's secret communications code.
The alleged betrayal contributed to the US government's decision to break with Chalabi, the one-time darling of Washington's neo-conservatives whose home in Baghdad was raided by Iraqi police and the US military last month.
According to US officials, six weeks ago Chalabi told Iran's Ministry of Intelligence and Security that Washington was reading the Iranian intelligence service's communications traffic.
Cracking the code
US intelligence was tipped off to Chalabi's alleged betrayal when it read a cable the Baghdad station chief sent to his superiors in Iran detailing his conversation with Chalabi.
In the cable, the Iranian official said Chalabi had told him that a drunk American had told him the US had broken the Iranian code.
"All of this is false. We have no relations in regard to intelligence"
Iran national security official
But Rowhani laughed off the report.
"Iraq is our neighbour, and not overseas. We can go and get cables ourselves, not send a telex," he asserted.
The Federal Bureau of Investigation has opened an espionage investigation into Chalabi's alleged contacts with Iran and to determine who revealed the Iranian code information to him, the daily said.
The probe, US officials told The New York Times, is focusing on a very small number of people who were close to Chalabi and had access to information about the Iranian code.