Arar was arrested on a stopover in New York in 2002 on his way home from a holiday and deported to Syria where he says he was tortured during the year he spent in prison.
Richard Skinner, the department's head of internal investigations, told a US congressional hearing on Thursday that he had new information that contradicted the previous investigation's findings.
He said the US justice department had been informed of the possibility that officials had known Arar would be tortured and was investigating.
Bill Delahunt, the Democratic chairman of the house foreign affairs subcommittee on international organisations, human rights, and oversight, called on the justice department to investigate whether the Bush administration had broken US laws on torture.
Compensation claim
US immigration officials determined that Arar could be legally deported to Canada, Syria or Switzerland.
Skinner said that Switzerland was ruled out for reasons that are classified.
In written testimony, he said that Arar requested to be returned to Canada, but the justice department said doing so would be "prejudicial to the interest of the United States".
US officials received assurances from Syria that Arar would not be tortured, but Skinner said those assurances were ambiguous.
The Canadian government has apologised to Arar and agreed to pay him almost $10m in compensation.
A Canadian investigation into the case found the Royal Canadian Mounted Police wrongly labelled him as an "extremist" and passed misleading and inaccurate information to the US authorities, which was likely to have led to his arrest and deportation.
The inquiry also found Arar had been tortured, and cleared him of any links to "extremist" groups.
Some US congressmen and women, including many at Thursday's hearing, also apologised to Arar last year.
The Bush administration has not apologised and defends its programme of "renditions" or secret international transfers of terrorist suspects, often to countries with dubious human-rights records, saying it has prevented attacks.