"Britain has no right to criticise Pakistan for sheltering terrorists while it failed to hold Hussain, leader of the Muttahida Quami Movement (MQM), to account for his alleged crimes," Khan told The Times in Islamabad.
Khan accused Hussain of involvement in the assassination of Zahra Shahid Hussain, a leader of his Pakistan Tehrik-e-Insaf party.
The 60-year-old cricketer-turned-politician claimed British accusations that Pakistan offered a safe heaven for terrorists were laced with hypocrisy.
He claimed that Britain has been "very soft" on Hussain, who has been based in north London since the 1990s.
Hussain was granted British citizenship in 2002, a year after writing to then Prime Minister Tony Blair offering MQM's help in fighting Islamic militancy in Karachi, where his party is accused of using violence to intimidate opponents.
According to the report, Khan said he had warned British High Commissioner to Pakistan Adam Thomson that Hussain had made threats against his party workers only two days before Zahra Shahid Hussain was shot dead.