Short of recommending stopping of aid to Pakistan, Panetta, in a testimony to a Senate's appropriations panel said the US would have to be careful about shutting the aid down.
Instead, he said he favoured placing conditions on aid based on "what we expect them to do". His testimony is crucial as influential lawmakers infuriated by Islamabad's closure of supply routes to North Atlantic Treaty Organisation forces in Afghanistan and stalling of a crackdown on Haqqani network are pressing for blockage of aid to the country.
The Obama administration has requested Congress for about $3.5 billion aid in military and economic assistance for Pakistan for fiscal 2013, Washington Post reported.
Panetta said that Pakistan's seven-month-long refusal to allow US and NATO supplies to cross its territory into Afghanistan is costing America an additional $100 million a month to fund alternative routes.
The defence secretary's testimony was the first time the Obama administration has put a dollar figure on the extra amount. Pakistan closed its border to NATO transit in November, after a US cross-border air assault inadvertently killed 24 Pakistani soldiers.
The Washington Post said that the Pentagon and the Pakistani negotiators have agreed on a new payment structure for the transit, but the deal was stalled over Islamabad's demand for an apology for the killing of its soldiers.
The Obama administration has expressed "regret" and offered condolences, but it has said that an apology is unnecessary for an incident in which Pentagon investigators found fault on both sides.
The apology issue has become a political lightning rod in Pakistan, where anti-American sentiment runs high. In the United States, Congress and the administration have grown increasingly irate over what is seen as Pakistani intransigence.
