ISLAMABAD: Prime Minister Yousuf Raza Gilani appointed a new director-general of the country's powerful spy agency on Friday, according to a statement from the prime minister's office.    

“The prime minister has appointed Lieutenant-General Zahirul Islam as the new DG-ISI,” it said, referring to the Directorate of Inter-Services Intelligence (ISI).

Islam, the Karachi Corps commander, takes over from Lieutenant-General Ahmad Shuja Pasha, who was appointed in 2008 and is retiring on March 18.

The appointment of Islam puts to rest rumours regarding whether Pasha’s tenure would be extended.

Opposition Leader in the National Assembly Chaudhry Nisar Ali Khan also showed his concern about the extension of the DG ISI. “PM has no authority to extend Pasha’s tenure,” he said on Thursday.

Pasha's departure is likely to come as a relief to the American intelligence community which had a working, if frosty, relationship with him.

That relationship became more difficult after US special forces found and killed al Qaeda leader Osama bin Laden in a town about a two-hour drive from the ISI's Islamabad headquarters in May last year.

Bin Laden's presence in Pakistan, by some accounts for up to five years, raised suspicions in Washington that Pakistan's main spy agency had been doing business with, or sheltering, America's number one enemy.