Information Minister Sheikh Rashid said the report in the latest edition of Time was full of distortion.
"The story is without facts and baseless," he told AFP.
The magazine reported that the United States was investigating whether Khan sold nuclear technology to Saudi Arabia and some other countries.
The news weekly, citing a source in Pakistan's defense ministry, said Khan had also played a bigger role in helping Iran and North Korea with their nuclear programs than had been previously disclosed.
"US intelligence officials believe Khan sold North Korea much of the material needed to build a bomb, including high-speed centrifuges used to enrich uranium and the equipment required to manufacture more of them," Time said.
But Rashid said Islamabad was cooperating with the International Atomic Energy Agency (IAEA) and the world community by sharing the results of its own probe, which it said led to the dismantling of an illegal proliferation network.
Pakistani President Pervez Musharraf has not allowed the US or the IAEA to interrogate Khan, who appeared on Pakistani state television in February 2004 and took full responsibility for transfers of nuclear technology to Iran, Libya and North Korea.
Musharraf gave him a conditional pardon and has said that no government or military body was involved in the proliferation scandal.
The minister insisted that Pakistan would never hand over the father of Pakistan's nuclear bomb to any other country.