In an appearance at a courtroom in downtown Washington, Flynn became the first member of Trump`s administration to plead guilty to a crime uncovered by the special counsel investigation into Russia`s alleged attempts to influence the 2016 U.S. presidential election.
Flynn, a former Army general and member of Trump`s campaign team, admitted as part of a plea deal that he gave false statements to the Federal Bureau of Investigation about his contacts with Ambassador Sergei Kislyak before Trump took office, Reuters reported.
ABC News said Flynn, facing up to five years in jail, was repared to testify that before taking office Trump had directed him to make contact with Russians.
Reuters could not immediately verify the ABC News report on Flynn testifying, which could put the Republican president in an uncomfortable spot after he has denied any collusion between his campaign team and Moscow.
Stocks and the dollar fell sharply after the ABC report, with the benchmark S&P 500 index last down 1.2 percent, the dollar last down 0.4 percent and bond yields falling with the 10-year U.S. Treasury note US10YT=RR yielding 2.32 percent.
Flynn`s decision to cooperate with the investigation led by Special Counsel Robert Mueller, marked a major escalation in a probe that has dogged Trump`s administration since the Republican president took office.
The White House said Flynn`s guilty plea on Friday implicated him alone.
"Nothing about the guilty plea or the charge implicates anyone other than Mr. Flynn," Ty Cobb, a White House attorney, said in a statement on Friday.
Flynn was forced out of his White House post in February for misleading Vice President Mike Pence about his conversations with the ambassador.
ABC News cited a confidant as saying Flynn was ready to testify that Trump directed him to make contact with Russians before he became president, initially as a way to work together to fight the Islamic State group in Syria.
If Flynn testifies that before taking office Trump directed him to contact Russian officials, that might not necessarily amount to a crime.
If it were proven that Trump directed Flynn to lie about his contacts to the FBI, that would be a crime but legal experts disagree over whether a sitting president can be indicted.
Many say the only clear punishment for a president who has committed criminal acts is impeachment by Congress. The Constitution provides that impeachment, which requires a simple majority in the House and a two-thirds vote in the Senate, is warranted for high crimes and misdemeanors, which Congress is free to define as it sees fit.
Moscow has denied what U.S. intelligence agencies say was meddling in the election campaign to try to sway the vote inTrump`s favor. Trump has called Mueller`s probe a witch hunt.