The decision comes as President Donald Trump's administration is exploring its approach toward Pakistan in developing a regional policy aimed at fighting Taliban militants and Islamic State fighters in neighboring Afghanistan. U.S. officials have told CNN that the Haqqani Network was likely behind the deadly May bombing in Kabul that killed close to 100 people.
There was about $50 million remaining in the funds, which will now be repurposed the Pentagon said.
Relations between the two countries have been frayed over the past decade, with USA officials frustrated by what they term Islamabad's unwillingness to act against Islamist groups such as the Afghan Taliban and the Haqqani network.
However, Pakistan did receive $550 million out of the total possible amount of $990 million for fiscal year 2016 from the Coalition Support Fund, which was established to reimburse partner countries for conducting counter-terrorism operations. The US administration has refused to confirm that Pakistan is taking the action mandated by the NDAA against Haqqani terror network for two successive years in a row now.
As part of the regular Defence Department budgetary process, the FY16 CSF money allotted for Pakistan needed to be released or reprogrammed prior to the expiration of the funding.
The U.S. reimburses foreign governments for the cost of military operations against certain militant groups under a program called the Coalition Support Fund.
Aizaz Ahmad Chaudhary, Pakistan's ambassador in Washington, said in a statement it "is a well-known fact that Pakistan's counter terrorism efforts have resulted in a significant decline in terrorists attacks".
"This decision does not prejudge the conclusions of the White House review of South Asia strategy, which is still ongoing", Stump said.
Stump did take pains to salute the Pakistani military for its work against terrorists in other areas, saying the United States is "encouraged by Pakistan's operations in North Waziristan and elsewhere in the Federally Administered Tribal Areas".
The United States in 2012 designated the Pakistan-based Haqqani network as a terrorist organisation. The report also listed Pakistan among countries with safe haven for terrorist organisations.
Pakistan was allotted Dollars 900 million aid through the special fund by the United States.
Pakistan is supposed to receive this year's $ 900 million.
This is the second time these funds have been withheld from Islamabad.
This is $10 billion fewer than the amount earmarked for fiscal year 2017, when counting additional funds provided last year in the Security Assistance Appropriations Act.