  Based on first principles calculations, we show that $Mn$ impurities are
magnetic in $MgB_{2}$ due to exchange-splitting of $d_{3z^2-1}$ band and they
substantially modify $B$ $p_{\sigma}$ and $p_{\pi}$ bands through
hybridization. Thus, $Mn$ impurities could act as strong magnetic scattering
centers leading to pair-breaking effects in $MgB_{2}$. In contrast, we find
$Fe$ impurities in $MgB_{2}$ to be nearly non-magnetic.
