New York Prosecutors will notify the court Friday of troubling believability issues with the woman once called extremely credible in her sexual assault allegations against former International Monetary Fund Director Dominique Strauss-Kahn, a source familiar with the case told CNN.

The issues were disclosed Thursday by prosecutors in a meeting with Strauss-Kahn's defense, the official said. The credibility problems are expected to be explained in a letter expected to be filed Friday by prosecutors with the court, the source said.

The revelation is particularly stunning given prior statements by police and Manhattan District Attorney Cyrus Vance, who spoke forcefully about the accuser's credibility in the days after Strauss-Kahn was arrested.

The matter is so serious that it ultimately could mean the collapse of the felony case against Strauss-Kahn, the source said.

However, according to the same source who has knowledge of the case, it is unlikely the felony charges against Strauss-Kahn will be scuttled immediately following Friday's hearing.

"There are a lot of different ways this could go," the source told CNN.

Attorneys for the hotel maid did not respond to repeated attempts by CNN for comment.

While it is unclear what the immediate ramifications are for the prosecution, defense attorneys are expected to ask for a reduction in Strauss-Kahn's strict bail terms during Friday's hearing.

"Prosecutors will not object and, in fact, will ask for a bail reduction," the source said.

Prosecutors told Strauss-Kahn's team that the hotel maid "had not been truthful in her application for asylum from her home country of Guinea, or about details about a prior sexual assault," the source said.

"There was more concern about what she told investigators in a very believable way. "

The problem was, according to the source, the prior assault didn't happen that way.

NYPD Deputy Police Commissioner Paul Browne told CNN he had "no comment" on the alleged credibility issue with the witness.

The New York Times, citing unnamed law enforcement officials, reported Thursday on its web site that the case against Strauss-Kahn was on the "verge of collapse as investigators have uncovered major holes in the credibility of the housekeeper."

Strauss-Kahn pleaded not guilty June 6 to seven charges involving a May 14 incident in which a housekeeping employee at New York's Sofitel hotel accused him of sexual assault.

Strauss-Kahn, who was considered a front-runner in France's presidential race before his arrest, faces charges that include criminal sexual acts and sexual abuse.

Throughout, Strauss-Kahn has proclaimed his innocence. His defense team in June challenged the woman's credibility, threatening to release information that would "undermine the quality of this prosecution and also gravely undermine the credibility of the complainant in this case."

There are "serious issues regarding the credibility" of a hotel maid, a source close to the defense told CNN earlier Thursday.

Strauss-Kahn's defense team will ask for bail modifications at a court hearing slated for Friday morning, the source close to the defense team said.

In previous court appearances, the judge said that if Strauss-Kahn wanted to leave the city, he would require the court's permission. Strauss-Kahn was previously required to turn over his French passport and United Nations travel credentials to authorities.

Strauss-Kahn was released from jail on $6 million bail but is under house arrest in a luxury townhouse in New York's Tribeca neighborhood.

He is under court-ordered watch as part of the terms of his bail agreement and must pay for 24-hour armed guards posted at the door, as well as electronic surveillance.

Strauss-Kahn has been paying roughly $250,000 a month on court-ordered security at the townhouse.

It is possible Strauss-Kahn's attorneys could ask Friday that he be released on his own recognizance.Prosecutors may object to any request that allows for the return of Strauss-Kahn's passport to travel outside the United States, said the source familiar with the case.

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