The United States has implanted devices in nearly 100,000 computers to spy on institutions such as the Chinese and Russian military, EU trade groups and agencies within Saudi Arabia, India and Pakistan.
The New York Times on Tuesday cited documents from the National Security Agency, computer experts and US officials stating that the NSA uses radio wave technology to gain access to otherwise encrypted computers or machines that are not connected to the internet.
The Times reported that the agency has been inserting tiny circuit boards into computers for several years. The technology allows non-internet connected computers to be hacked, and bypasses encryption and anti-spyware systems that otherwise prevent hacking over the world wide web.
The NSA calls the effort an "active defence"' and has used the technology to monitor units of the Chinese and Russian armies, drug cartels, trade institutions inside the European Union, and US allies including Saudi Arabia, India and Pakistan, the Times reported.
Among the most frequent targets has been the Chinese army, the Times reported.
The United States has accused the Chinese Army of launching regular attacks on American industrial and military targets, often to steal secrets or intellectual property.
US officials have protested when Chinese attackers have placed similar software on computer systems of US companies or government agencies.
The NSA said the technology has not been used in computers in the US.
"NSA's activities are focused and specifically deployed against - and only against - valid foreign intelligence targets in response to intelligence requirements,'' Vanee Vines, an agency spokeswoman, said in a statement to the Times.
"We do not use foreign intelligence capabilities to steal the trade secrets of foreign companies on behalf of - or give intelligence we collect to - US companies to enhance their international competitiveness or increase their bottom line.''