Brothers Jamil Daud Mujahid, 56 and Michael Ray Stubbs, 55, were presented to the media at the Philippine Navy headquarters where Mujahid angrily rejected the allegation.
"It's not true. We're Americans. I have a wife, I have a kid. These are all fabricated lies. I don't know any Muslims in the Philippines," Mujahid said.
Mujahid, formerly known as James Stubbs, acknowledged that he was a Muslim convert, but insisted his brother was a Christian. The two, in handcuffs and under tight guard, were whisked out of the navy headquarters room before they could say more.
The two were detained in Tanza town, south of Manila, on 13 December, following intelligence reports that they had met with "known leaders of various terrorist cells in the country with links to al-Qaida," the immigration bureau said.
Immigration Commissioner Andrea Domingo said that the two had shown support for "terrorist activities" by meeting with members of the Abu Sayyaf group and the Muslim separatist Moro Islamic Liberation Front (MILF).
"We're Americans. I have a wife, I have a kid. These are all fabricated lies. I don't know any Muslims in the Philippines"
Jamil Daud Mujahid
She declined to elaborate, saying any further comment may jeopardise continuing investigations.
The immigration bureau said Mujahid's local contacts sought his help in getting US-based Muslim groups to provide funds supposedly for civic projects among Muslims in the Philippines.
Stubbs was described as a "computer expert" who maintained bank accounts with "substantial deposits sourced from contacts of suspicious and dubious background."
Philippine Marine Commander Major General Manuel Teodosio said Navy intelligence had monitored communications between the two and Abu Sayyaf and MILF.
The MILF is a separatist rebel group, believed to have ties with the Jemaah Islamiyah (JI) network, said by intelligence experts as the Southeast Asian arm of al-Qaida.
The arrests came amid heightened security across the Philippines to thwart possible terrorist attacks during the holidays.
On 30 December 2000, a series of bombings hit vital installations in Manila, killing more than 20 people.
Immigration chief Domingo said the detained Americans had been in and out of the country since February 2002 and Mujahid had married a local woman.
Domingo said it was up to the US government to take any action against the brothers after they were deported. She did not say when they would leave the country.
US State Department Deputy Spokesman Adam Ereli confirmed in Washington the two had been arrested, saying they were "currently being detained on immigration violations".
US embassy spokesman Karen Kelley said the two had met with consular officials, but said she was unaware if they faced any legal charges in the United States.