Stevens, who became a Muslim and changed his name to Yusuf Islam, was questioned by FBI agents after his Washington-bound flight was diverted to Bangor, Maine, yesterday.
It emerged the former star was on a “watch list”.
CNN later quoted a US government official as saying Stevens was on the watch list because of “known associations and financial support to organisations believed to be aiding terrorism”.
It is understood that Stevens was added to the watch list only recently.
“He was placed on the list because of concerns about activities that could potentially be related to terrorism,” said a spokesman for the Department of Homeland Security.
“The intelligence community has come into possession of information that raises concerns about him,” the spokesman added.
Islam was denied entry to the United States on national security grounds, the Transportation Security Administration said.
A US government source said Islam was refused entry because of fears that he had financially supported the terrorist group Hamas.
He was denied entry to Israel four years ago for the same reason.
But Islam has denied giving money to any terrorist group.
He was being detained by Customs and Border Protection officers in the US and will be returned to Britain on the first available flight, officials said.
Flight 919 from London diverted 600 miles to Bangor International Airport yesterday, landing at about 7.30pm BST, after US security officials were told Islam was aboard.
He had been allowed to board the flight after United Airlines officials initially failed to spot his name on the watch list.
It is understood Islam’s name appeared on the Advanced Passenger Information System, which requires airlines to send passenger information to Customs and Border Protection’s National Targeting Centre.
Islam was a recent addition to the list - he travelled to the US unhindered in May for a charity event and to promote a new DVD of his 1976 MajiKat tour.
Islam, aged 56, was travelling with his 21-year-old daughter who was allowed into the country after the flight continued to Washington’s Dulles Airport.
Passengers were told the diversion was for refuelling and eventually arrived in Washington six hours late.