According to a report in the Sunday World, Donaldson - one of three men arrested in October 2002 following allegations
of a republican spy-ring at Stormont - is staying in a run down cottage without running water or electricity and has to chop wood to make a fire.
It is understood the prefamine property is five miles from the village of Glenties and there are no occupied homes nearby.
Donaldson was one of three men arrested in October 2002 following allegations of a republican spy-ring at Stormont.
But in December, shortly after the case against him collapsed, he was unmasked as a British agent.
The former aide to Sinn Féin President Gerry Adams sensationally admitted he had been a spy for more than 20
years.
He immediately fled his west Belfast home and has not been seen since giving a television interview in which he admitted his amazing double life.
The ex-prisoner was famously photographed with his arm around
Bobby Sands in an iconic image that went round the world during the 1981 IRA hunger strike.
Donaldson is pictured in the weekend edition of the Sunday World newspaper outside the secluded cottage looking gaunt and with a scruffy beard.
He claimed he was sacrificed in a Secret Service plot to preserve the political career of the Ulster Unionist leader, David Trimble
Donaldson told the paper: "The plan was to collapse the institutions to save Trimble – David Trimble was trying to out- DUP the DUP and in the end the DUP swallowed
him up.
"The whole idea was to get Trimble off the hook and get republicans the blame.
"But it didn't work because Trimble is history now."
He added: "There was never a spy ring at Stormont."
Donaldson also said he had no idea how documents relating to the private details of British Army Chief of Staff, hundreds
of prison officers and other individuals came to be found in a holdall in his west Belfast home.
The ex-political aide told the newspaper he was not in contact with any of his former party colleagues.
But Donaldson denied being in hiding and said he simply wanted to be left alone.
Asked how he now felt about his British paymasters he replied: "That's a good question. I don't know why they did it."
Asked how he felt about the public dismissal of him by his former friend Gerry Adams, Donaldson shrugged and said: "I don't want to be in touch with anyone. As you can see, I'm in the middle of nowhere."
"All conflicts end in political solutions — it's the only way."
Asked about his future he added: "This is it."