The dog - which has been named DaGarwal (Pashto for Colonel) by its captors - disappeared during an operation in December. It surfaced this week in a video posted online showing Taliban commanders with weapons captured from foreign forces.
Local people in Alingar Valley, in the eastern province of Laghman, said the dog was being held by a notoriously brutal commander who goes by the nom de guerre of Abu Zarqawi.
Zabiullah Mujahid, a spokesman for the Taliban, claimed the movement's fighters had repelled an operation to clear a militant base in the valley on Dec 23 and the dog became separated from its handlers during an intense firefight. He said it was being well treated and that senior commanders had still to decide its fate. "It's always possible that we could use the dog since it has been trained," he said. "If someone offers a trade for it then we can think about that."
The dog had accompanied SAS troops working alongside fighters of the Afghan national army during a mission in the area.
The date coincides with a British operation east of Kabul in which a special forces soldier, Capt Richard Holloway of the Royal Engineers, was killed.
Mr Mujahid said the militants were cooking beef and chicken to feed the chocolate coloured Belgian shepherd. "It is not like the local dogs which will eat anything and sleep anywhere," he said. "We have to prepare him proper food and make sure he has somewhere to sleep properly."
Dogs are used extensively in Afghanistan by Nato-led forces. They can sniff out explosives or drugs and are used for crowd control or search and rescue operations.
However, they are a source of contention with the local population, which views the animals as unclean.