The unit, called the Strategic Support Branch, has also been in operation in other places sources would not disclose, the newspaper said on Sunday, citing documents and interviews.
An early planning memorandum to Defence Secretary Donald Rumsfeld from the chairman of the Joint Chiefs of Staff, General Richard Myers, said the focus of the initiative was on "emerging target countries such as Somalia, Yemen, Indonesia, Philippines and Georgia", according to the newspaper.
The secret spying organisation is designed to provide Rumsfeld with tools to conduct human intelligence tasks, such as interrogation of prisoners and recruitment of foreign spies.
However, Defence Department spokesman Lawrence DiRita said there was "no unit that is directly reportable to the secretary of defence for clandestine operations as is described in the Washington Post article".
"Further, the department is not attempting to 'bend' statutes to fit desired activities, as is suggested in this article," he added in a statement.
Pentagon is trying to penetrate
anti-US groups such as al-Qaida
But a Republican lawmaker said his US Senate committee would look into a reported move at reinterpreting law to give Rumsfeld broad authority over spy operations abroad.
Senate armed services committee member John McCain said the move was "a product of the frustration with the CIA of a failure to have decent human intelligence".
"Should the armed services committee look at it? Yes. And should we know more about it? Yes. And I'm always sorry to read about things in the Washington Post when they affect a committee that I'm a member of," he said.
Recruited agents may include "notorious figures" whose association with the US government would be embarrassing if revealed, the paper said, citing a Pentagon memo.
Rumsfeld has been trying since October 2001 to provide the US military with faster access to intelligence and new tools to penetrate groups such as al-Qaida.
But the Pentagon's initiative encroaches on the traditional territory of the CIA and gives the defence secretary unprecedented authority over foreign spying at a time when Congress is trying to group an array of intelligence agencies under a new national intelligence director.
Rumsfeld for months opposed the creation of the new post and was instrumental in stalling the passage of intelligence reform legislation recommended by the commission that investigated US intelligence failures prior to the 11 September 2001 attacks.