Gunmen killed a US aid official yesterday outside his home in Peshawar, police said, the Pakistani city that has borne the brunt of an Islamist insurgency spreading from tribal lands bordering Afghanistan.

Spiralling violence has raised fears of instability in nuclear-armed Pakistan, whose support is seen as vital to the defeat of al Qaeda globally and the Taliban in Afghanistan.

The US aid official and his Pakistani driver were in a Peshawar neighbourhood favoured by diplomats and foreign aid workers close to the American Club. "As he was coming out of his home, the attackers opened fire on him and killed him along with his driver," said a senior police officer, who requested anonymity.

Peshawar is the last city on the road to the Khyber Pass, the main land route to Afghanistan, close to the rugged semi-autonomous tribal region where al Qaeda and Taliban insurgents have taken root.

The victim was Steve Vance, the head of US government funded project to develop livelihoods in the tribal region, police officials, and a former colleague said.

He was living in Peshawar with his wife and five children, having arrived in the city early this year, according to the ex-colleague.

US missile strikes in the tribal lands bordering Afghanistan have fuelled growing anti-American sentiment.

During the 1980s, Peshawar became a den of spies and jihadis when the US and Saudi Arabia covertly funded a mujahideen guerrilla war to expel the Soviet army from Afghanistan.

In late August, three members of the US consulate in Peshawar escaped unhurt after gunmen ambushed their vehicle.

The US embassy in Islamabad confirmed that an American had been killed and that he was not a diplomat, but withheld his name.