The "close ties" of 37-year-old Davis, arrested in Lahore on January 27 for killing two men he claimed were trying to rob him, with the Tehrik-e-Taliban Pakistan came out during investigations, `The Express Tribune` reported quoting an unnamed senior official of Punjab Police.
"Davis was instrumental in recruiting young people from Punjab for the Taliban to fuel the bloody insurgency (in Pakistan)," the official said.
The report came a day after The New York Times, citing US government officials, said that Davis "was part of a covert, CIA-led team of operatives conducting surveillance on militant groups deep inside the country."
Among the groups that Davis was keeping an eye on was the banned Lashker-e-Taiba, which carried out the 2008 Mumbai terror attacks, the NYT said.
The Express Tribune quoting unnamed sources said that call records retrieved from mobile phones found on Davis had allegedly established his links with 33 Pakistanis, including 27 militants from the banned Taliban and Lashkar-e-Jhangvi.
The report claimed Davis was "said to be working on a plan to give credence to the American notion that Pakistan`s nuclear weapons are not safe."
"For this purpose, he was setting up a group of the Taliban which would do his bidding," it said.
Davis` job was to trace the links of the Taliban and al- Qaeda in different parts of Pakistan but instead investigators found that he had developed "close links" with the Taliban, the report said quoting a source.
Investigators had reportedly recovered 158 items from Davis, including a 9mm Glock pistol, 75 bullets, a GPS device, an infrared torch, a wireless set, two mobile phones, a digital camera, a survival kit, five ATM cards and Pakistani and US currency. The camera allegedly had photographs of Pakistani defence installations.
Intelligence officials claimed these items proved that Davis was involved in "activities detrimental to Pakistan`s national interests."
Meanwhile, a Pakistani court accepted the government`s request to hold the trial of Davis in the heavily-guarded Kot Lakhpat jail in Lahore, where he is currently lodged, for security reasons.
The prosecution department of Punjab government had filed an application in the court of Additional District and Sessions Judge Yousuf Aujla asking for Davis` trial to be held in Kot Lakhpat jail.
Aujla accepted the application and ordered that proceedings should be held within the jail itself from February 25.
Davis could not be produced in court on an earlier occasion and the hearing was conducted through video-conferencing.
The New York Times said the CIA team in Lahore with which Davis was associated "was tasked with tracking the movements of various Pakistani militant groups, including Lashkar-e-Taiba, a particularly violent group that Pakistan uses as a proxy force against India but that the United States considers a threat to allied troops in Afghanistan".
It said Davis, a retired Special Forces soldier, carried out scouting and reconnaissance missions for a CIA task force, working from a safe house in the eastern city of Lahore.
The Obama administration has demanded the release of Davis contending that he is an "administrative and technical official" attached to its Lahore consulate and that he enjoys diplomatic immunity.
Pakistani leaders, fearful of a public backlash, have turned down the US demand for Davis to be freed on grounds of diplomatic immunity and insisted that his case will be decided by the courts according to the country`s laws.
A petition relating to Davis` diplomatic status is pending before a Lahore court. The next hearing is on March 14.
JuD terrorist outfit has demanded that Davis be executed and blamed the US for bomb blasts across the country that have resulted in "large-scale killings."
Hundreds of supporters of the Jamaat-ud Dawah (JuD) joined a gathering that marched from Chauburji to Qurtaba Chowk yesterday to demand "death" for Davis.