The dog -- named DaGarwal, Pashto for Colonel -- appeared this week in a video of Taliban commanders posted online, Britain's Daily Telegraph reported Friday.
Locals in Alingar Valley said the dog is in the possession of a commander who goes by the name of Abu Zarqawi.
"I saw it six days ago with Taliban and it looked OK," said one man speaking on condition of anonymity.
Zabiullah Mujahid, a spokesman for the Taliban, said the dog got separated from its British handlers during a firefight.
"Right now we are keeping the dog and trying to look after him," he said.
"We haven't decided what to do with it yet. Maybe we will keep it and use it ourselves because it has been trained."
The spokesman said the dog is being fed chicken and kebabs.