The allegation was contained in a leaked classified document published last week in a Canadian newspaper.
"These allegations are false and constitute a wholly unmerited attack on my reputation and my security," the accused, Adil Charkaoui, said in a statement issued by his supporters, who called for a public inquiry.
Montreal's La Presse said it had obtained a transcript of a 2000 conversation between Charkaoui and another Montreal man that was recorded by Canadian intelligence services.
The document alleged that Charkaoui, originally from Morocco, and Abousfian Abdelrazik, who is of Sudanese origin, had discussed a plot to blow up a plane, possibly an Air France flight, between Montreal and Paris.
"And if we left from here to go, for example, to France. It would be a long trip. We could both register the same day and board separately. There would be two in the front, two (inaudible on the transcript) and two behind. Six in total," Charkaoui told Abdelrazik, according to the leaked document.
Abdelrazik dismissed the plan as too dangerous.
But Charkaoui replied that he had some kind of pen-shaped device, saying, "Throw that into a plane and the plane will explode," according to the transcript quoted by La Presse.
Charkaoui had been suspected of being a sleeper agent for the Al-Qaeda network, and was arrested in May 2003. He spent 21 months in prison, held under a special security certificate.
It is a controversial legal tool under which a foreigner deemed to pose a risk to Canadian national security can be held without trial and then expelled.
Charkaoui was never formally charged and has called for $25 million in compensation from the government.
Abdelrazik is believed to have trained in Al-Qaeda camps in the mid-1990s, and thought to have helped convicted terrorist Ahmed Ressam, who was sentenced in the United States for trying to blow up Los Angeles airport in 1999.
Abdelrazik, 49, was arrested in 2003 by authorities in Sudan and spent a year in prison there. After his release he was unable to travel back to Canada as his name had been added to a UN list of terror suspects.
He spent a year hunkered down in the Canadian embassy in Khartoum, as Ottawa refused to issue him a new passport because he was on the blacklist.
The courts finally overturned Canada's refusal, and Abdelrazik is campaigning to clear his name and win $27 million in damages.
Abdelrazik's lawyer, Khalid Elgazzar, previously told AFP that his client was "disappointed" by the leak of the document, which was written in 2004 by Canada's intelligence services.
It "seemed to be an attempt to drain Mr. Abdelrazik's efforts to restore his reputation with the UN," he added.