The allegation was the latest in a string of reported claims by Semdin Sakik, the second-in-charge of a Kurdish rebel group, the Kurdistan Workers' Party, since his abduction earlier this month by Turkish troops in northern Iraq.
The Istanbul daily Sabah reported that the party's leader Abdullah Ocalan, ordered Palme's killing after Sweden decided to extradite eight rebels in the Workers' Party, known as the PKK. Ocalan was also angered that Sweden granted his wife asylum after she defected from the PKK, it said.
The group rejected the claim Tuesday, however, and spoke of a Turkish plot to discredit the rebel organization, the German-based pro-Kurdish news agency DEM said.
"Such dirty accusations directed at the PKK for years have proven to be untrue," DEM quoted a rebel spokesman in Sweden.
Palme was killed while walking home from a movie theater with his wife in downtown Stockholm. Christer Pettersson was convicted of the killing, but the verdict was overturned by a higher court on grounds of insufficient evidence.
Sweden's supreme court is considering a motion to retry Pettersson.
Sakik reportedly said Palme's murderer escaped to France after the attack. Turkish authorities are investigating his claims, Deputy Prime Minister Bulent Ecevit told reporters Tuesday.
Sakik's alleged testimony was not the first time the PKK has been implicated in the Palme killing. Sweden had incurred the wrath of Kurdish militants in the early 1980s when its government branded the PKK a "terrorist organization."
Prosecutor Jan Danielsson, who leads Sweden's investigation in the Palme killing, told the Swedish paper Aftonbladet that authorities would wait for a report by Swedish diplomat Katarina Berggren, who was briefed by Turkish authorities Tuesday.
"There is a strong indication that the Turkish side is trying to discredit the PKK," the newspaper quoted Danielsson as saying.
Several other theories have emerged surrounding the Palme murder.
In 1996, a South African police official testifying on apartheid-era crimes implicated agents of the previous regime.
Sakik commanded PKK operations inside Turkey and is accused of having masterminded a fatal attack on 33 soldiers in 1993.
Since his abduction, Sakik has also reportedly claimed that several Turkish journalists, businessmen, politicians and human rights activists had links to the PKK. The accused have denied the claims.
Nearly 37,000 people have been killed in the Turkish-Kurdish war since 1984, when the PKK launched its armed campaign for autonomy in the country's southeast.