The move -- designed to force Pakistan's military and intelligence apparatus to cut support for the Taliban and other Islamist groups -- will include both US military assistance and Afghanistan coalition funding to Islamabad.
It is "approximately two billion worth of equipment and coalition support funding that is in play," the senior official said on condition of anonymity.
The source added that "all options are on the table" when it comes to further moves, including stripping Pakistan of its status as a "major non-NATO ally" or calling in vital IMF loans.
After more than a decade of simmering US anger at Islamabad's links with the Afghan Taliban and the Haqqani network -- a Taliban affiliate -- the Trump administration is trying to draw a line in the sand.
"The United States has foolishly given Pakistan more than 33 billion dollars in aid over the last 15 years, and they have given us nothing but lies & deceit, thinking of our leaders as fools," Trump tweeted on New Year's Day.
"They give safe haven to the terrorists we hunt in Afghanistan, with little help. No more!"
On the hook is almost $1 billion of US military equipment that has allowed Pakistan access to advanced military technology, but also funding that is meant to pay Pakistan for helping to get US and NATO materiel into Afghanistan.
Analysts believe the United States is highly unlikely to freeze all that funding, which, according to the source, totals $1.9 billion.
US officials have already indicated that there could be "exemptions" for programs deemed vital to US national security -- likely including cash for keeping Pakistan's nuclear weapons safe.
But nevertheless, the total figure of $1.9 billion is much higher than first indicated and is a signal of Washington's seriousness.
"We are still working with Pakistan and we would restore the aid if we see decisive movements against the terrorists who are as much of a threat against Pakistan as they are against us," said Defense Secretary Jim Mattis.
Hackles in Islamabad
Pakistan has fought fierce campaigns against homegrown Islamist groups, and says it has lost thousands of lives and spent billions of dollars in its long war on extremism.
But US officials accuse Islamabad of ignoring or even collaborating with groups that attack Afghanistan from safe havens along the border between the two countries.
The White House believes that Pakistan's Inter-Services Intelligence agency and other military bodies have long helped fund and arm the Taliban for ideological reasons, but also to counter rising Indian influence in Afghanistan.
It also believes that a Pakistani crackdown could be pivotal in deciding the outcome of the war in Afghanistan -- now entering its 17th year -- by weakening the Taliban militarily and forcing the organization to the negotiating table.
In September last year, the US suspended $255 million in funding to help Pakistan buy high-tech weaponry from American manufacturers.
Now, the Defense Department has been instructed to stop making payments from "coalition support funds" set aside to refund Pakistani spending on counter-terrorist operations.
The rhetoric has raised hackles in Islamabad and fears the row could undermine Pakistan's support for US operations in Afghanistan.
The announcement ignited some small protests in Pakistan on Friday, including in Chaman, one of the two main crossings on the border with Afghanistan where several hundred people gathered to chant anti-US slogans.
"We don't need any type of aid. Almighty Allah is with us and he is giving us everything," protester Mohammad Saleem told AFP, adding that he had a message for President Donald Trump: "Don't threaten us."
But Pakistan's foreign ministry issued a cautious statement in which it said it was "engaged" with US officials and awaiting further details.
Without referring to the decision directly, it warned that "arbitrary deadlines, unilateral pronouncements and shifting goalposts are counterproductive in addressing common threats."
Afghanistan welcomes move
US officials admit that Pakistan could make life difficult for Washington by closing land routes that are vital to supply US troops in Afghanistan. This year's fighting season will begin again within months.
But, the official said, it was "difficult but not impossible" to find other ways to get equipment in, and the US was also worried about its credibility if it continues to fund a country harboring America's enemies.
The move, which US officials had hinted at for months, was greeted optimistically in Afghanistan.
"We have been saying for years that neighboring Pakistan is providing safe haven to terrorist groups, and they were also funding the terrorist groups," Nasrat Rahim, deputy interior ministry spokesman, told reporters in Kabul.
On Thursday, the US State Department also tweeted that it has placed deeply conservative Muslim Pakistan on a special watch list for severe violations of religious freedom.
Pakistan, whose religious minorities have long been marginalized and targeted, said it rejects the designation and would seek a clarification from Washington.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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