Israeli police said earlier this month that while Israel and Hezbollah battled each other last summer, Azmi Bishara, who has resigned from Israel's parliament, advised the Shiite Muslim group. They alleged he passed on sensitive information and suggested ways of causing more harm to Israel.
"I categorically and absolutely deny this," Nasrallah told the Iranian state television's Arabic-language station, Al-Alam. "All the accusations about contacts and giving information to Hezbollah are not true."
Bishara left Israel a month earlier after being grilled twice by investigators and later resigned his parliament seat. Police said he would be arrested immediately if he returns to Israel.
Nasrallah said Bishara was being pursued for his positions by a government in Israel who wants "to settle scores" and quipped that Hezbollah did not need the military information: "He's not of use to be an informant," Nasrallah said.
"His personality is not that of an informant. ... He is a well-known man, a thinker with a cause who says his conviction and ideas with known courage," The Hezbollah chief said. "They are holding him accountable for his political ideas."
Bishara, who has appeared on several Arab satellite stations over the years, has antagonized many Jewish Israelis by meeting with some of Israel's bitterest enemies, including the leaders of Syria and Hezbollah, since joining parliament in 1996. A Christian from the Israeli town of Nazareth, he frequently speaks out in favor of Palestinian rights.
Israel was "fed up with him (Bishara) so they fabricated those accusations against him," Nasrallah said.
In an interview earlier this month from Amman, Jordan, Bishara said he was a victim of political persecution. Bishara has pledged to come back to face his accusers, but did not say when he would return to Israel.
The July 12-Aug. 14 war between Hezbollah and Israel erupted when guerrillas crossed the international border, killing three Israeli soldiers and capturing two. Israel responded with a massive bombardment of Lebanon and a ground offensive, and Hezbollah lobbed several thousands rockets into Israel.
An Israeli commission report last week sharply criticized Prime Minister Ehud Olmert for the war's failure, triggering calls for his resignation.
Hezbollah has refused to release the two soldiers without a package deal to exchange them for Arab prisoners held by Israel.
Nasrallah disclosed Sunday that there has been progress on the prisoners' case but was vague in his comments. "It is on the way to be solved. It's just a matter of time," he said.
Nasrallah's deputy, Sheik Naim Kassem, said in April that the U.N.-mediated negotiations to secure a prisoner swap are going on in a "serious" manner, but so far there have been no results.
During his visit to Lebanon last month, U.N. Secretary-General Ban Ki-moon expressed disappointment that there had been no progress toward the release of the two Israeli soldiers.
Israel and Hezbollah have had prisoner swaps in the past.