The spying operation was part of a broader campaign by Israel to penetrate the negotiations and then build a case against the "emerging terms of the deal," unnamed White House officials were quoted as saying by the Wall Street Journal.
Israel, America's strategic ally in the Middle-East, quickly dismissed the report as "not true" and denied spying on the US, admitting it obtained information by spying on Iran and by receiving intelligence from European officials.
In addition to eavesdropping, Israel acquired information from confidential US briefings, informants and diplomatic contacts in Europe, the report said.
The espionage operation was discovered when US agencies stumbled upon communications between Israeli officials that carried details the US believed could have come only from access to the confidential talks.
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The report added that more than the espionage it was the sharing of inside information with US lawmakers to drain support for the high-stakes deal that irked the White House. Many Republicans are opposed to nuclear deal with Iran.
The report gives further credence to the souring relations between US President Barack Obama and Netanyahu, with their discord coming out in the open. The distrust between the two leaders had been growing for years but worsened after Obama launched secret nuclear talks with Iran in 2012.