"PAS categorically deny that either PAS or its Youth Wing is involved in instigating the Muslims of southern Thailand to rebel against the Thai government," PAS secretary-general Nasharuddin Mat Isa said in a statement.
The charges allegedly published in the Bangkok Post were "designed to tarnish our reputation," he said, demanding the newspaper should furnish evidence that the party was involved in activities "designed to disrupt law and order in southern Thailand."
"It is indeed a piece of deceitful and libellous journalism to throw allegations against us while attributing the source of news to an unnamed official who has leaked a (dubious) government report to the press," he said.
"We therefore call upon the Bangkok Post to publish a retraction and apology in a prominent manner in its next issue failing which we shall instruct our legal counsel to file proceedings in a court of law for damages," he said.
At the same time, prominent Malaysian politician Anwar Ibrahim has accused Thai Prime Minister Thaksin Shinawatra of "arrogance" over Muslim unrest in the south of the country and warned that his attitude could spark further clashes.
Thaksin's initial response to the deaths of 87 Muslim protesters two weeks ago, most of them in army custody, was "pathetic", Anwar said.
Anwar Ibrahim: What's brewing
in Thailand is causing concern
"What's brewing up in Thailand is causing concern," said the former Muslim youth leader and deputy prime minister who was once tipped to become Malaysia's prime minister.
"Either you resolve it and make a political resolution now or you are just inviting this utter disgust and frustration that will lead to the mushrooming of terrorist cells."
"Thaksin's initial reaction seems to be pathetic, to completely ignore the problems and to be so arrogant and to accept in total the arguments by the security forces," Anwar said.
He was voicing a popular view among Malaysian Muslims, who share a kinship with Muslims across the border in mainly-Buddhist Thailand, although the government of Prime Minister Abdullah Ahmad Badawi has been more restrained in its criticism.
Anwar, who was released two months ago after six years in prison on a charge of corruption which he says was trumped up to destroy his career, is barred from holding public office but remains a force in Malaysian politics.
He said Thaksin should call for an immediate ceasefire and replace the army in the area with other security personnel.
Thaksin has been urged to call
for an immediate ceasefire
Those responsible for the deaths of the protesters, most of whom suffocated after being packed on top of each other in army trucks, should be "dealt with severely", he said.
"You legitimise the perception that there is oppression by condoning this sort of activity. They say they don't condone it but are slow to act, they try to rationalise and protect the perpetrators of the crime."
Describing the situation as a "national crisis", Anwar said Thaksin "should appeal to the king to come into the picture.
Anwar said the lack of economic development, often cited as one of the main reasons for Muslim unrest in the south, was only part of the problem, pointing out that some other areas in the country were equally underdeveloped.
"It is also the issue of having to deal with some of the state apparatus and the police who are deemed to be very corrupt and high handed in their manner," he said.
"If there are radical cells deal with the cell as a cell; you don't deal with a cell as a community."
Only 4% of the population in Thailand are Muslims, but they are in a majority in four southern provinces where separatists and the disaffected are battling the authorities.
More than 540 people have died this year in an insurgency that flared in January.