Musharraf says they are in Kandahar and Karzai needs to take care of them but Karzai claims they are on the Pakistani side and Musharraf needs to do more to fight them.
"As soon as President Karzai understands his own country, the easier it will be for him," Musharraf said while promoting his book In the Line of Fire at a function organized by the Council of Foreign Relations here.
But the Pakistani leader also said that he believes Karzai is the right person to lead Afghanistan.
This is second time in a week that the two leaders, who are close to Washington and claim to be leading states in the frontline of fight against terrorism, have exchanged harsh words on which country needs to do more to fight Taliban and where exactly they have the bases.
The latest spat came hours before the two leaders are to meet with American President George Bush in a trilateral meeting in Washington.
Musharraf also demanded that coalition fighting Taliban help spread economic development in Pashtun areas to wean them away from the Taliban and ensure that they do not join them.
At the United Nations, while Karzai had said that his country is victim of terrorists who find shelter in Pakistan, Musharraf contended that they are in Afghanistan and Pakistan is the victim.
Musharraf repeated what he had said several times during his current visit that Taliban leader Mullah Mohammad Omar is in Kandahar region of Afghanistan and had not set foot on Pakistani soil since 1955 and rejects the Afghan leader's contention that Omar is in Quetta in western Pakistan.
"This the most ridiculous statement," he said and challenged anyone to prove it.
In his book, Musharraf said he had written the memoirs against the advice of his advisers, and that he was criticized for being forthright and overly candid.