Panamanian President José Raúl Mulino on Thursday denied the U.S. State Department’s claim that his country had agreed to allow U.S. government vessels to transit the Panama Canal for free, an assertion that has upended the two countries’ talks on the waterway.

Panama's president says the State Department's claim of an agreement granting U.S. warships free canal passage was "based on a falsity. And that's intolerable."

Panama President Jose Raul Mulino said on Thursday the United States was spreading "lies and falsehoods" after the State Department claimed U.S. government vessels would be able to pass the Panama Canal without paying.