The state of relations, while never being perfect, is now alarming, Wall Street Journal reported quoting top US security officials who said the tensions are costing US the chance to hit key terrorists in the region.
US officials say the Pakistan's ISI is no longer providing the targeting information and as a result there have been no drone attacks in Pakistan's turbulent tribal region since January 23.
While, some officials and experts say that weather may be a factor but this is one of the longest periods without a strike since the start of the Obama administration.
Drone strikes peaked in September 2010 with a record 22 attacks claiming as many as 321 lives of terrorists but they have been falling to as low as just seven since the beginning of new year.
The paper said US intelligence officials suggest that the sharp drop in strikes may be because CIA is having trouble in pinpointing new 'Haqqani' network targets, either because the militants have gone deeper into hiding or have moved to new areas, possibly with the help of ISI.
The Haqqani network has long used the Miranshah, the capital of North Waziristan as its main base of operations in Pakistan. But US officials says there are signs that the group may be shifting base to nearby Kurram agency on directions of ISI.
US has been exerting pressure on Pakistan to launch a major military operation in North Waziristan, but the Pakistan military has been dilly dallying a response for the past six months.
The falling out was traced by US officials to a series of controversial incidents starting late last year, which prompted tit-for-tat accusations that burst into the open with the outing of CIA station chief of Pakistan in December.
The CIA official had to leave Pakistan when he was publicly named and the Americans blamed ISI for leaking the identity.
The paper said the pause may have been to enable the Pakistan military and the ISI to direct the Haqqani network.
Jeff Dressler, a leading US insurgency expert on the Haqqani network told the paper the shifting of base by the Haqqanis would provide the group's fighters, who are aligned with al-Qaeda and Taliban, with more space and easier access to Afghan capital Kabul.
"The ISI has tracked the movement of Haqqani's but the Pakistan government has now shared that intelligence with the US intelligence," a top US official said.
He said "no one can move out of Miranshah without the Pakistan government getting to know it, especially the bigger fish."
More recently, tensions have risen to new highs over Pakistan's detention of special forces soldier Davis.
The CIA chief Leon Panetta in his testimony before the US Congressional Committee acknowledged that relations between intelligence agencies were "one of the most complicated" he's ever seen.
US officials said that meetings between ISI and CIA officials formerly held every 10 days have become less frequent and Pakistan had recently quietly shut down at least two so called "fusion centres" that bring together intelligence officials of two countries.
Senator Dianne Feinstein, Chairman of the Congress' Senate Committee said here yesterday that she sees now the CIA-ISI relationship as "something less than whole hearted partnership" because the ISI is "walking both sides of the street".