A single-judge bench of the Lahore [ Images ] high court had on August 28 suspended Khan's security protocol and directed authorities not to restrict his movements.
Acting on an appeal filed by the federal government, a two-member bench headed by Justice Saqib Nisar suspended the earlier order and restored Khan's security protocol.
The deputy attorney general informed the bench that Khan had "misguided" the Lahore high court about his security arrangements.
"The federal government and Dr Khan had an agreement between them in this regard," he said.
The government produced this agreement in the Islamabad [ Images ] high court in February after which that court had declared Khan a "free citizen".
At that time, the government had eased some of the restrictions imposed on Khan in 2004, when the scientist admitted to operating a clandestine proliferation network.
After hearing the deputy attorney general's arguments, the two-judge bench also issued a notice to Khan to appear before it at the next hearing of the matter on September 15.
Khan recently filed a petition in the Lahore high court in which he claimed he was living like a "prisoner" due to the security protocol.
Plainclothes personnel from security agencies and policemen are deployed around Khan's residence in a posh neighbourhood near the Faisal Mosque in the heart of Islamabad.
It is believed that intelligence agencies and the security set-up for the nuclear programme are also involved in keeping an eye on Khan's activities and movements.
The United States government had expressed serious concern over the Lahore high court's earlier order suspending Khan's security protocol and described the scientist as a "serious proliferation risk".
"Our concerns over the potential for proliferation activities by Mr Khan are well known to the Pakistani government," State Department spokesperson, Ian Kelly, said on Tuesday.