CHICAGO (Reuters) - U.S. prosecutors denied on Friday striking a deal with an accused Mexican drug trafficker who said he was a confidential informant for U.S. agents and was entitled to immunity from prosecution.

Jesus Vicente Zambada-Niebla, the son of Ismael "El Mayo" Zambada, the right-hand man of Sinaloa cartel chief Joaquin "Shorty" Guzman, is awaiting trial in Chicago on charges he trafficked cocaine and heroin and ran cash profits to Mexico.

In late July, Zambada's lawyers said the U.S. Drug Enforcement Administration struck a deal with cartel attorney Humberto Loya-Castro in 1998, granting him and its chiefs immunity in return for information about rivals.

The defense said the deal was "known and approved" by the Justice Department and cartel leaders and it applied to Zambada because he replaced Loya-Castro as the cartel's "primary liaison" with the U.S. government -- arguments dismissed by prosecutors.

"Contrary to defendant's claim, no immunity was conferred upon him, nor was any immunity conferred upon Loya-Castro," U.S. Attorney Patrick J. Fitzgerald said in documents filed with the U.S. District Court in Chicago on Friday.

"In fashioning his motion (he) has attempted to bootstrap a relatively standard cooperation agreement ... into an alleged omnibus immunity agreement for the 'leadership' of one of the largest narcotics trafficking and criminal organizations in the world, the Sinaloa Cartel," he added.

Fitzgerald urged judge Ruben Castillo to deny the motion by Zambada's attorneys seeking to dismiss the indictment and hold an evidentiary hearing.

Known as "El Mayito" or the "Little Mayo," Zambada was arrested two years ago in Mexico City. Extradited to the United States last year, he is now in jail awaiting trial in Chicago.

Zambada said he met with the DEA's regional directors for Latin America and Mexico at a hotel in Mexico City shortly before his arrest and that he received guarantees of immunity from prosecution.

His lawyers said he was told he would receive immunity not only under Loya-Castro's prior agreement but as an agreement with him personally and "approved at the highest levels of the government."

Prosecutors on Friday said Loya-Castro acknowledged no government official or law enforcement officer had promised any benefit in exchange for his cooperation under a cooperation agreement he signed in a 2005.

"Even if counsel's additional factual assertion were true that defendant himself was told ... he had the same immunity agreement as Loya-Castro ... which it is not, an agent's promise of this sort of international street immunity is unenforceable as a matter of law," prosecutors said.

Allegations that Mexico's most powerful cartel cut a deal with U.S. officials, if proven, could embarrass Washington.

Raging drug violence has claimed at least 42,000 lives in Mexico since President Felipe Calderon took office nearly five years ago and sent troops to crush the powerful cartels.

Zambada is confined to a cell in the Metropolitan Correctional Center in Chicago, where he complains he has no access to outdoor recreation and suffers chronic stomach problems.

His extradition was hailed by the Justice Department as one of the most significant in years.

(Writing by Tim Gaynor; Editing by Jerry Norton and Cynthia Johnston)

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