Army radio had said on Saturday that the government was considering a request for the imminent release of Jonathan Pollard.
Pollard is serving a life sentence for giving thousands of secret documents about US spy activities in the Arab world to Israel between May 1984 and his arrest in November 1985.
However Asaf Shariv, a spokesman for the Israeli prime minister's office, on Sunday denied the claim.
"We completely deny this report. The question is not on the table," Shariv told AFP.
A spokesman for the US embassy in Tel Aviv, Stewart Tuttle, said: "There is nothing to indicate that there is any truth to these rumours that are flying around.
"The Pollard case is closed. He is serving his sentence. As for al-Barghuthi, that's for the Israeli government."
Al-Barghuthi, regarded as the inspiration behind the second Palestinian uprising against Israeli occupation, was given five life terms for murder by an Israeli court in June 2004.
Pollard is an American Jew and former analyst for the Pentagon. Pollard's wife, Esther, told Army Radio that an official close to George Bush, the US president, had recommended to him that Pollard be released by the Jewish holiday of Passover, which began last week. She did not identify the official.
Pollard was working as a civilian naval analyst for the Pentagon when he was arrested in 1985, and pleaded guilty.
Pollard is serving a life sentance
for selling US secrets to Israel
Just before his arrest, which caused a diplomatic row between the United States and Israel, Pollard had tried to seek refuge at the Israeli embassy in Washington.
His case remains a sticking point in US-Israel relations, and Israel has repeatedly lobbied American presidents for his pardon.
Since Pollard's sentencing, Israel has granted him citizenship.