Donors in Saudi Arabia and the United Arab Emirates are estimated to have been sending up to $100 million annually to radical Islamic schools in Pakistan that back extremist groups, according to a leaked US diplomatic cable.
The cable alleged that financial aid for a "sophisticated jihadi recruitment network" was coming from "missionary" and "Islamic charitable" organisations in the Gulf, ostensibly with the direct support of the Saudi and UAE governments.
The 2008 cable, purportedly sent by an officer at the US consulate in Lahore, was obtained by WikiLeaks and published by Pakistan's Dawn newspaper on Sunday.
Asked to respond to the report, a Saudi foreign ministry spokesman, Osama Nugali, said: "Saudi Arabia issued a statement from day one that we are not going to comment on any WikiLeaks reports because Saudi Arabia is not responsible for these reports and we are not sure about their authenticity."
Saudi Arabia, the US and Pakistan heavily supported the Afghan mujahideen during the Soviet occupation in the 1980s.
Armed groups subsequently mushroomed in the region, and extremists moved to Pakistan's northwest tribal areas along the border with Afghanistan.
Since then there has been a growing link between groups there and in Punjab, Pakistan's most populous province, where the recruitment network is alleged to have existed.
In recent years, extremist groups have been carrying out suicide bombings seemingly at will in Pakistan, despite military offensives against their strongholds.
The cable described how “families with multiple children” and “severe financial difficulties” were being exploited for recruitment purposes, Dawn reported.
Families would be approached by "supposedly charitable" groups, and clerics would then offer to educate thier children and "find them employment in the service of Islam".
Martyrdom was later discussed, the cable alleged, with parents offered a final cash payment estimated at $6,500 by local sources. Recruits "chosen for jihad" would then be taken to "indoctrination camps".
The discovery that Osama bin Ladenwas living in a Pakistani town not far from Islamabad until he was killed in a raid by US forces earlier this month has severely damaged ties between Washington and Islamabad.
US lawmakers and senior American officials have said before that Saudi donors and charities were still directing financial support to extremists in the region, including in Afghanistan.
But the cable was notable because it indicated that financial support was now reaching a once moderate area of southern Pakistan that observers had been warning was becoming more radical.
Dawn published other US cables on Saturday indicating that Pakistan's government had called for the US to step up drone strikes, and asked for US special forces troops to be embedded at Pakistani military bases in the country's tribal region.
The Pakistani army denied those reports.