Panama denied a request from Nicaragua to allow safe passage for ex-President Ricardo Martinelli to leave the country after Nicaragua granted asylum to the former Panamanian leader.
The foreign ministry said in a statement on Friday.
Martinelli is a declared presidential candidate in Panama's upcoming May election, but a nearly 11-year prison sentence handed down last year for money laundering has cast doubt on his ability to run for his old job.
The combative former leader moved to Nicaragua's embassy after Panama's top court rejected an appeal to annul the sentence.
Panama's constitution bars anyone sentenced to a prison term of five years or more from serving as president, although electoral authorities have not announced any disqualification of candidates.
Panama's foreign ministry urged Nicaragua to avoid exceeding its functions, adding that any action or declaration Martinelli makes from the embassy that impacts Panama's domestic policy will be seen as interference and have diplomatic consequences.
Hours after Panama's statement, Nicaragua reaffirmed the asylum it granted to Martinelli, saying it was given for humanitarian reasons because the former president considers himself politically persecuted.
Martinelli has publicly said he considers his life to be in danger in Panama.
"Failure to recognize asylum and to deny safe conduct is a violation of the Conventions on Asylum," Nicaragua's foreign ministry said in its statement.
Martinelli's running mate, vice presidential hopeful Jose Raul Mulino, wrote on X that he sees an international conflict coming between the two nations, noting that the country should take any asylum decision it is directed at.
Earlier on Friday, senior U.S. diplomat Brian Nichols described Nicaragua's decision to grant asylum to Martinelli as undermining the rule of law.