The government`s "extreme unhappiness" with Kayani, currently on a three-year extension, and Pasha, who received a one-year extension in service last year, is an "open secret", The News daily quoted its sources as saying.
The two generals have been held responsible for forcing Pakistan to adopt an "extremely harsh stance" towards the US after last month`s NATO air strike, the report said.
They also "adopted a diabolically opposing stance to that of the government" on the alleged memo that sought US help to stave off a possible military coup in Pakistan in May.
The Memogate scandal could cause "extremely serious problems" for the ruling Pakistan People`s Party and some top leaders in their individual capacity if it is properly investigated, the report said.
"Saner voices in the inner most circles of the President and the Prime Minister" have advocated "restraint and caution" as recent events, including the serious divergence of opinion on matters of national security, have created the impression that the entire security establishment is "under attack from its own political leadership", the report added.
Commenting on the possible response of the security establishment if the two generals were fired, a source told the daily: "Nobody knows and hopefully nobody will have to find the answer to this troubling question. In fact, were such an action to take place and even if the concerned officers accepted the decision and went home, nobody knows how the institution will react."
The source contended that serious national security issues were at stake and this "consideration can easily outweigh other priorities and restraints, regardless of future judicial or constitutional repercussions of any such forced retaliatory action" by the military.
Speculation about the possible removal of the generals began doing the rounds after Prime Minister Yousuf Raza Gilani criticised the army last week, saying it was unacceptable for the force to act as a "state within a state".
Gilani also questioned the military`s failure to detect Osama bin Laden`s presence in Pakistan for six years.
The report claimed key players involved in framing US foreign and military policy were playing an "active role in encouraging Islamabad into taking" the decision to sack the two generals.
Former CIA official Bruce Riedel and former National Security Advisor James Jones are among those influencing both the US intelligence and military to support Pakistan in such a move, it said.
The Pakistani political leadership had been assured by US leaders of full financial and diplomatic support by Washington were it to order the removal of the two generals, the report claimed.
Meanwhile, The Express Tribune quoted a military source as saying that if Kayani or Pasha were sacked, the army might approach the Supreme Court.
It reported that the army chief had held a series of consultations with top commanders in recent days to discuss tensions with the government and "possible options to deal with the situation if things go from bad to worse".
There was consensus in the army that there would be no direct military intervention if the government decides to sack the army and intelligence chiefs, the source said.
Instead, the military has decided to challenge such a move in the apex court, the source said.