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ROME - Italy and NATO on Thursday denied a newspaper report that Italian intelligence secretly paid the Taliban thousands of dollars to keep the peace in an Afghan area under Italian control.

Premier Silvio Berlusconi's office called the report in the Times of London "completely groundless." The Italian defence minister denounced it as "rubbish" and said he wanted to sue the newspaper.

In Kabul, a U.S. spokesman for NATO forces in Afghanistan denied the allegations. "We don't do bribes," Col. Wayne Shanks said. "We don't pay the insurgents."

"The article has unnamed sources, innuendo and hyperbole," Shanks said. "We see no evidence of any of the accusations."

The Times reported that Italy had paid "tens of thousands of dollars" to Taliban commanders and warlords in the Surobi district, east of the capital, Kabul. The newspaper cited Western military officials, including high-ranking officers at NATO, speaking on condition of anonymity.

It accused Rome of failing to inform its allies about the payments and of misleading the French, who took over the Surobi district in mid-2008, thinking the area was quiet and safe. Shortly afterward, French troops were hit with an ambush that killed 10 soldiers and had significant political repercussions back in Paris.

French Defence Ministry spokesman Christophe Prazuck said he had "no information to confirm what has been written in the Times" and stressed that allied troops in Afghanistan share information and enjoy mutual trust.

The Aug. 18, 2008 ambush of the French in a mountain pass was the biggest single combat loss for international forces in Afghanistan in more than three years. The attack, which also injured 21 people, shocked the French public and French officials came under heavy pressure to explain how the troops got caught in such a well-planned and unusually bloody ambush.

A statement by Berlusconi's office strongly refuted the report.

"The Berlusconi government has never authorized nor has it allowed any form of payment toward members of the Taliban insurgence," the statement said, adding that it does not know of any such payment by the previous government.

Berlusconi won elections in April 2008, replacing a centre-left government headed by Romano Prodi.

Berlusconi's statement noted that the Italian contingent was praised at the time by the ISAF, the NATO-led International Security Assistance Force. It quoted the former U.S. commander in Afghanistan, Gen. David McKiernan, as saying the Italians had achieved results in the area, especially in the construction of wells, bridges, schools and through aid to the agriculture.

The statement also noted that in the first half of last year, the Italian contingent suffered several attacks, and one soldier was killed in Surobi in February 2008.

The statement also denied that the U.S. ambassador to Italy had made a formal complaint in June 2008 over the alleged payments, as the Times reported. The U.S. Embassy in Rome declined to comment on the report.

Commanders in Iraq and Afghanistan have, however, been doling out money for years to compensate civilians for combat losses and for civilian projects. Shanks said Thursday that commanders do have funds available to use in their area, but insisted the money goes to development projects decided with local leaders or in compensation for battle damage.

"We invest money in local development projects ... We work every day in the field, at the side of the Afghan security forces," said Col. Jacky Fouquereau, a spokesman for the French army in Afghanistan.

Fouquereau said he had no information to confirm the Times report.

Ignazio La Russa, the Italian defence minister, said the benevolent attitude toward Italians serving in Afghanistan was due to the amount of time spent talking to locals and winning their trust.

The report is "offensive to the deaths we have suffered in Afghanistan, to our injured ones and to the daily level of commitment of our soldiers," La Russa told reporters.

Italy has about 2,800 soldiers stationed in Herat and in the capital of Kabul. It has suffered 21 deaths in Afghanistan, including a soldier who died Thursday in a road accident.

La Russa reiterated his condolences to the French but said their loss "can in no way be connected to the behaviour of our soldiers."

Shanks said he did not have specifics on the handover between the Italians and the French in the Surobi district. But he said NATO forces spend a lot of time making sure intelligence doesn't get lost, holding debriefings, going on patrols with the departing unit and going over development projects under way.

"We share information constantly with the Italians, the Turks and the French in Kabul, daily, regularly," Prazuck, the French military spokesman, said in Paris. "There is one single strategy, one single chain of command."

The 2008 ambush was the highest French military death toll in an attack in years.

French President Nicolas Sarkozy rushed to Afghanistan to offer support for French troops and his government faced a no-confidence vote in France's parliament over it. That measure failed.

Reports later emerged that the French troops were poorly equipped -- running out of ammunition 90 minutes into the battle and having only a single radio that went dead, leaving them unable to call for help. The French military also denied those reports.

"We don't know for sure the truth right now," said Beatrice Gaillet, the mother of a 20-year-old Damien Gaillet, who died in the ambush. "But the news won't bring my son back, no one can."

But she said she does not plan to file a complaint to the French government.

The Times report revived accusations that Italy has a penchant for paying its way out of difficult situations.

Allegations that Rome paid ransom to free its hostages have appeared in cases of kidnappings involving Italians abroad, though governments have denied this. In 2007, Prodi's government came under fire because it negotiated the release of five Taliban militants in exchange for the freedom of an Italian hostage in Afghanistan.