Editor's note: a late-breaking response from John Markham, a U.S. lawyer who represents Ahmad Chalabi, was added to the fourth paragraph of this story on Friday.

Ahmed Chalabi, the one-time Pentagon favorite to lead a post-Saddam Iraq, has been removed from a top Iraqi government post over his continued contacts with suspected Iranian operatives, according to U.S. officials.

Only last fall, Chalabi had resurrected his turbulent political career when the government of Prime Minister Nuri al-Maliki, with backing from U.S. military commander Gen. David Petraeus, named him to head a committee charged with restoring essential services, including electricity and public safety, to Iraqi communities. "He was going to be the guy to turn the lights on in Baghdad," said a former U.S. intelligence official who has closely followed developments in Iraq. (The official, like others quoted in this story, spoke on condition of anonymity about internal government deliberations.)

But three U.S. government officials told NEWSWEEK that Maliki's government recently forced Chalabi out of his new job over an issue that has long clouded his reputation--his murky ties to Iran, including leaders of the Iranian Revolutionary Guard Corps (IRGC), the country's internal security force. The Bush administration has accused the IRGC and its paramilitary spinoff, the Quds Force, of training and arming pro-Iranian renegade militias that are attacking U.S. and Iraqi troops.

The White House and State Department press offices referred all inquiries about the latest Chalabi controversy to the Iraqi government. Tahseen al-Sheikhli, an Iraq government spokesman for security operations in Baghdad, said "I cannot confirm or deny" the removal of Chalabi. Mohammed al-Mousawi, a Chalabi spokesman in Baghdad, told NEWSWEEK's Christian Caryl: "This information is completely wrong. Ahmed Chalabi and the INC [Iraqi National Congress, Chalabi's political organization] haven't been informed by the Iraqi government or the American troops about this issue." John Markham, a U.S. lawyer who represents Chalabi, said he was unaware of Chalabi's removal from his Baghdad position. (Update: Markham e-mailed NEWSWEEK on Friday saying Chalabi "has not been dimissed from any board and that in fact today he went to a meeting of the services committee at the Prime Minister's office.") He strongly disputed that there was anything improper about his client's dealings with Iranian officials. "I know he is extremely dedicated to his country," Markham told NEWSWEEK. "Most Iraqi leaders have relationships with various people in Iran and his are like everybody else's."

But U.S. officials contacted by NEWSWEEK said Chalabi's ouster was triggered by his ongoing relationships with pro-Iranian figures inside Iraq who, in the eyes of the Maliki government, are trying to destabilize the country. "He was once again operating in that same gray zone that he always has," said the former U.S. intelligence official who is close to several figures in the Maliki administration. "There was enormous friction inside the Iraqi government over this."