The disclosure, in The Los Angeles Times, came after a week of vitriolic debate on Iraq, amid growing demands for a speedy withdrawal of US troops and tirades from Bush spokesmen who all but branded as a traitor anyone who suggested that intelligence was deliberately skewed to make the case for war.
Yesterday Donald Rumsfeld, the Defence Secretary, joined the fray, saying that talk of manipulation of intelligence "does great disservice to the country".
In Beijing, President George Bush said that a speedy pullout was "a recipe for disaster" - but the proportion of Americans wanting precisely that (52 per cent according to a new poll) is now higher than wanted similar action in 1970, at the height of the Vietnam war.
In an extraordinary detailed account, the Times charted the history of the source, codenamed Curveball, an Iraqi chemical engineer who arrived in Germany in 1999 seeking political asylum, and told the German intelligence service, the BND, how Saddam Hussein had developed mobile laboratories to produce biological weapons.
But by summer 2002, his claims had been thrown into grave doubt. Five senior BND officials told the newspaper they warned the CIA that Curveball never claimed to have been involved in germ weapons production, and never saw anyone else do so. His information was mostly vague, secondhand and impossible to confirm, they told the Americans - "watercooler gossip" according to one source.
Nonetheless the CIA would hear none of the doubts. President Bush referred to Curveball's tale in his January 2003 State of the Union address, and the alleged mobile labs were a central claim in the now notorious presentation to the United Nations by Colin Powell, then Secretary of State, in February 2003, making the case for war.
The senior BND officer who supervised Curveball's case said he was aghast when he watched Mr Powell overstate Curveball's case. "We were shocked," he said. "We had always told them it was not proven ... It was not hard intelligence."
The Iraqi, it now is clear, told his story to bolster his quest for a German residence visa. According to BND officials, he was psychologically unstable.
The debacle became complete when American investigators, sent after the invasion to find evidence of the WMDs, instead discovered Curveball's personnel file in Baghdad. It showed he had been a low-level trainee engineer, not a project chief or site manager, as the CIA had insisted. Moreover he had been dismissed in 1995 - just when he claimed to have begun work on bio-warfare trucks.
Curveball was also apparently jailed for a sex crime and then drove a Baghdad taxi.
The latest disclosures come at an especially delicate moment, as the Senate Intelligence Committee is about to resume a long-stalled inquiry into the administration's use of pre-war intelligence. Committee members said last week that the Curveball case would be a key part of their review. House Democrats are calling for a similar inquiry.
Washington is also still reverberating from the outburst of John Murtha, the veteran Democratic Congressman and defence hawk with close ties to the Pentagon, who last week urged an immediate "redeployment" of the 160,000 US troops in Iraq. Administration attempts to label him a defeatist have abjectly backfired. "I've never seen such an outpouring" of support, the decorated Marine Corps veteran, now 73, declared on NBC's Meet the Press programme yesterday. "It's not me, it's the public that's thirsting for answers."
No longer could President Bush "hide behind empty rhetoric". Mr Murtha said that his vote for war in October 2002 "was obviously a mistake. We were misled, they exaggerated the intelligence". He forecast that whatever the Bush administration said, "We'll be out of there by election day 2006" - a reference to next November's mid-term elections, when many Republicans fear that the Iraq debacle could drag the party down to defeat.
Intelligence red herrings
* Curveball: The Iraqi chemical engineer in his late twenties who defected to Germany in 1995, with tales of mobile germ weapons laboratories that were dubious before the invasion, and later shown to be false. The CIA brushed aside all doubts.
* Ahmed Chalabi: The exiled Iraqi leader won his way into the favour of the Pentagon. Defectors he brought to US attention proved to be false, as was his claim that US invaders would be met with bouquets.
* Iraq's quest to buy uranium from Niger: This claim was based on forged documents originating in Italy, but President Bush repeated it in his 2003 State of the Union speech.
* The aluminium tubes affair: Saddam was said to be seeking parts for a centrifuge for use in making a nuclear weapon. Analysts' doubts were disregarded.