The flight was already in the air when US officials identified that Islam was on one of their "watch lists".
United Flight 919 was diverted to Bangor where Islam was questioned and detained by federal authorities who planned to put him on a return flight early on Wednesday, a US transportation security official said.
Transportation Security Administration (TSA) officials said access was denied "on national security grounds", without giving any further details.
The Washington Post, citing sources familiar with the event, reported that Islam, whose name is listed as "Usef Islam," is on several government watch lists, including the no-fly list.
The flight, with the remaining passengers, departed for Dulles International Airport after about four hours on the ground.
Islam's daughter, who was accompanying her father on the flight, will be allowed to stay in the US, government officials said.
According to a CNN report, a government official said Islam was on the watch list because of "known associations and financial support to organisations believed to be aiding terrorism".
"He has consistently denounced the acts of terrorists as being directly contradictory to the peaceful teachings of Islam, his religion for the past 20 years"
Cat Stevens website
However, Islam himself was not classified as a terrorist.
One administration official said the singer had been in the US as recently as May, and was a recent addition to the list, the report said.
A statement posted on the www.catstevens.com website said Islam "does support many charitable organisations, including Small Kindness, his charity which benefits Muslim orphans in war-torn countries such as Bosnia".
"However, he does not support terrorism. He has consistently denounced the acts of terrorists as being directly contradictory to the peaceful teachings of Islam, his religion for the past 20 years," the statement added.
"Yusuf has donated thousands of dollars to the 9/11 Fund in addition to his many other projects. Any suggestion that he has donated any funds to terrorist organisations is untrue."
The statement added that Islam's last visit to the US was for the launch of Small Kindness USA and his Majicat DVD release.
Cat Stevens had a string of pop hits in the early 1970s including Moonshadow and Wild World before embracing Islam in late 1977.