The Afghan government and its Nato allies were duped into holding peace talks with a man posing as one of the most senior members of the Taliban leadership, it was revealed today.

According to Afghan and US sources quoted by the New York Times, authorities held face-to-face talks with the man who claimed to be Mullah Akhtar Muhammad Mansour, the second highest official in the Taliban movement.

Western sources quoted by the New York Times also confirmed a Guardian report that the man was paid a large sum of money in the hope that he would remain engaged in negotiations.

But foreign and Afghan sources believe the man was lying about his identity after an Afghan official involved in one of the clandestine talks – who had previously met the Taliban chief – said he did not recognise the man posing as Mansour.

The revelation is a potential humiliation for Hamid Karzai, the Afghan president who has increasingly put his hopes in a peace deal with insurgents.

A western official in Kabul confirmed the thrust of the New York Times story and said the Americans had been aware of the blunder for some time, but refused to go into details. The US embassy referred all enquiries to the Afghan government.

No officials from Karzai's office were immediately available, but one Afghan with knowledge of the negotiations also confirmed the story.

In a press conference in Kabul called to mark Karzai's return from the Nato conference in Portugal, the Afghan president denied some of the key claims of report, including that he had ever met the man in his palace.

He also denied the senior Taliban leader travelled from Pakistan to Kabul. Officials say that on occasions Nato airplanes were used to transport the Taliban representatives. General David Petraeus, the US commander of Nato forces, confirmed that foreign forces have given safe passage to Taliban envoys involved in peace talks.

Karzai dismissed the recent press reports as "propaganda".

"Do not accept foreign media reports about meetings with Taliban leaders. Most of these reports are propaganda and lies," he said.

There has long been scepticism among foreign diplomats in Kabul about the seriousness of the talks, with most assuming the two sides were a long way from any sort of breakthrough. Concerns had also been raised about the payment of money to Taliban representatives, which suggested Karzai was more interested in buying off the insurgents rather than trying to engage with them.

But no one predicted the main interlocutor would be an impostor and possibly even, as the Washington Post reported, a humble shopkeeper from the Pakistani city of Quetta.

Close colleagues of Karzai said the Afghan president increasingly sees peace talks as the only way to end the conflict, while the president's critics accuse him of being too keen to compromise with the Pakistani intelligence agency which is believed to play a critical role in supporting insurgents.

The Taliban maintain their firm public line that they are not taking part in talks and will not consider negotiations until foreign troops leave Afghanistan. In a recent statement, the Taliban supreme leader Mullah Omar said reports of peace talks were "misleading rumours".