A US Senate panel has cut $33m (£21m) in aid to Pakistan in response to the jailing of a Pakistani doctor who helped the CIA find Osama Bin Laden.
The Senate Appropriations Committee has said it will cut US aid by $1m for each year of Shakil Afridi's sentence.
Secretary of State Hillary Clinton said his term was "unjust and unwarranted".
Dr Afridi was tried for treason under a tribal justice system for running a fake vaccination programme to gather information for US intelligence.
Bin Laden was killed by US forces in Abbottabad, Pakistan, in May 2011.
The move from the Senate panel follows earlier cuts to the White House's budget request for Pakistan. The cuts would be part of a bill that would send $1bn in aid to Pakistan in the next financial year.
"We need Pakistan, Pakistan needs us, but we don't need Pakistan double-dealing and not seeing the justice in bringing Osama Bin Laden to an end," said Republican Senator Lindsey Graham, calling Pakistan "a schizophrenic ally".
Meanwhile Democratic Senator Patrick Leahy said: "It's Alice in Wonderland at best. If this is co-operation, I'd hate like hell to see opposition."
Correspondents say the cuts reflect mounting frustration in Congress over Pakistan's role in fighting terrorism on its soil.
Absent from court
Meanwhile, Mrs Clinton spoke out against Dr Afridi's sentence.
"The United States does not believe there is any basis for holding Dr [Shakil] Afridi. We regret the fact that he was convicted and the severity of his sentence," Mrs Clinton told reporters on Thursday.
She added that she would continue to pursue the issue with the authorities in Pakistan.
The killing triggered a rift between the US and Pakistan, whose government was seriously embarrassed as it emerged Bin Laden had been living in Pakistan.
Islamabad felt the covert US operation was a violation of its sovereignty.
Shortly after the raid on Bin Laden's house, Dr Afridi was arrested for conspiring against the state of Pakistan.
Pakistan has insisted that any country would have done the same if it found one of its citizens working for a foreign spy agency.
Dr Afridi was found guilty in Khyber district, and fined $3,500. If he does not pay the fine his prison sentence will be extended by a further three years.
Dr Afridi, who is now being held in jail in Peshawar, was not present in court so was unable to give his side of the story.
In June, Pakistani army officials told the BBC that some suspects were arrested for helping the Americans refuel their helicopters during the raid. Others were detained because they were suspected of firing flares to guide the helicopters towards the compound.
It is not clear if Dr Afridi knew who the target of the investigation was when the CIA recruited him, or what DNA he managed to collect in the fake hepatitis B vaccination programme.
The idea was to obtain a blood sample from one of the children living in the Abbottabad compound, so that DNA tests could determine whether or not they were relatives of Bin Laden.
The issues of drone strikes and Pakistan's refusal to re-open Nato supply routes to Afghanistan have also recently strained the two allies' relationship.
Pakistan's parliament has called for an end to the use of drones, and says they are an attack on its sovereignty. A drone strike on Wednesday killed four people in the North Waziristan tribal area, security officials said.
The two countries also failed to reach agreement at the Nato summit in Chicago over the supply routes that were closed after a US air strike in 2011 killed 24 Pakistani soldiers.
Islamabad is demanding more than $5,000 (£3,200) per lorry in transit fees, up from its previous rate of $250, to let supplies flow again
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