Panetta canceled the contract earlier this year and the work is being shifted to government personnel, a person familiar with the contract said Friday. The person spoke on condition of anonymity to discuss the classified program.
Blackwater is now known as Xe Services. A spokesman was not immediately available for comment on the contract cancellation. The New York Times first reported the contract's existence in August.
The CIA's Predator program targets senior al-Qaida operatives and Taliban in Pakistan's tribal area along the border with Afghanistan, but the agency has never publicly confirmed its role in the operation.
Since Jan. 28, 2008, there have been at least 67 suspected U.S. missile strikes into Pakistan, according to Pakistani intelligence officials and witnesses interviewed by The Associated Press after each strike.
There was a fresh strike Tuesday, according to Pakistani officials. The target of that attack was identified Friday by a U.S government official as Saleh al-Somali, a senior al-Qaida operations planner.
Al-Somali was responsible for the terror group's operations outside the Afghanistan-Pakistan region, reaching into activities in Africa, the official said, adding that al-Somali has likely been involved in plotting attacks against the United States and Europe. The official spoke on condition of anonymity to discuss covert operations.
News of the cancellation of the contract came on the heels of published reports late Thursday that Blackwater security operatives joined CIA agents in "snatch and grab" raids that took place regularly between 2004 and 2006, when violence from the insurgency in Iraq was escalating.
A U.S. official confirmed to AP on Thursday that Blackwater provided security and traveled with CIA teams on missions in war zones, but emphasized they were not hired to directly participate in sensitive CIA missions.
CIA Director Leon Panetta ordered a review several months ago of the company's contracts to be sure its guards only perform security-related work, the official said. The official spoke on condition of anonymity because he was not authorized to comment publicly.
Separately, CIA spokesman George Little said Friday that "at this time, Blackwater is not involved in any CIA operations other than in a security or support role."
Xe Services said Friday that Blackwater was not under contract for involvement in the secret raids.
"Blackwater USA was never under contract to participate in covert raids with CIA or Special Operations personnel in Iraq, Afghanistan or anywhere else. Any allegation to the contrary by any news organization would be false," Xe spokesman Mark Corallo said in an e-mailed statement.
The firm, based in Moyock, N.C., changed its corporate name this year after a series of use-of-force controversies, including a September 2007 shooting in Baghdad by five company security guards that left 17 civilians dead.
The CIA's paramilitary forces are small, and often borrow from U.S. military special forces to fill out their ranks. They rely on companies like Blackwater to provide drivers, convoy security, and perimeter protection on sensitive CIA operations.
The central question, according to the reports in The New York Times and The Washington Post, was whether private security guards crossed the line into direct participation in the CIA operations. Blackwater's role in providing security to CIA missions in war zones is already known on Capitol Hill.
"As is customary when intelligence community-related issues arise in the press, committee staff has contacted the CIA for additional details and clarification of these recent news stories," said Courtney Littig, a spokeswoman for the House Intelligence Committee.
If true, the company's involvement would point to a much deeper connection between the company and the spy agency than has been previously disclosed. And it would raise concerns over the legalities of involving contractors in the most sensitive intelligence operations conducted by the U.S. government.
One former CIA officer stationed in Baghdad in 2004 said that during his tenure in Iraq, Blackwater employees did not accompany CIA officials when they conducted insurgent raids, which were led by Delta Force or the Navy Seals. The former officer confirmed that during that period Blackwater protected the agency's office and chief of station.
The former intelligence officer said special operations forces carried out the captures, with CIA officers gathering intelligence at the scene afterward. He spoke on condition of anonymity because he was not authorized to discuss Blackwater's role.
The House Intelligence Committee is still probing at least five incidents in which Congress believes it may have been deliberately misled or kept in the dark about significant intelligence programs.
One of those included a contract with Blackwater founder Erik Prince to target al-Qaida figures, a program the CIA says never became operational. Panetta informed Congress about the program in June, a day after terminating the eight-year on-again, off-again effort.
Rep. Jan Schakowsky, D-Ill., an outspoken critic of Blackwater, is heading one part of the committee's probe.
"I have long opposed the outsourcing of inherently governmental responsibilities to for-profit companies who are outside the official chain of command, especially Blackwater (Xe)," she said.
"What appears to be a deep relationship between Blackwater and the CIA should cause all Americans to take pause. It is extremely dangerous for the U.S. to become dependent on private contractors for military or intelligence operations."
As of August 2008, more than a quarter of the U.S. intelligence agencies' employees were outside contractors, hired to fill in gaps in the military and civilian work force.
Associated Press writer Lolita C. Baldor contributed to this report. Goldman reported from New York.