The interaction of NO with Pd clusters has been studied by means of the LCGTO-DF method. Metal cluster models (up to 13 atoms) with different size and geometry have been used to describe the atop, bridge and three-fold sites. The use of different model core potentials to increase the size of the cluster model treated and to save computational time has been discussed. The binding energies of N(1s), 4σ, 5σ and 1π electrons are calculated and compared directly to the experimental XPS and UPS data available. The NO is tilted with respect to the surface normal axis when adsorbed on top and bridge sites by about 52.6 and 46.7 degrees, respectively. On the two types of three-fold sites (hcp and fcc) the NO remains upright. The bending angle is very sensitive to the cluster size and affects the binding energies of N(1s), 4σ, 5σ and 1π orbitals. The NO adsorption energies on the different adsorption sites have been estimated using different cluster models. The vibrational frequencies have been calculated in the harmonic approximation and they are in reasonable agreement with the available experimental values. The cluster model approach is discussed in terms of its reliability to determine the adsorption energies and the favored site of adsorption.