Sir Cliff Richard could take the BBC to court after the broadcaster rejected his demand for more than £1 million damages from them and the police.
Sir Cliff, 75, is seeking damages for the live coverage of a raid on his penthouse in Berkshire in August 2014.
His lawyers have told the BBC he wants damages because he believes the BBC and South Yorkshire Police "unawfully" colluded on the coverage.
The historic sexual abuse case against him was dropped last month.
BBC sources told the Telegraph that said it stands behind its reporting of the story and their lawyers have responded accordingly.
The broadcaster has already apologised for the distress caused to the star, but insists that the story was strongly in the public interest.
A BBC spokesman told Christian Today: "As we have said previously, we are very sorry that Sir Cliff, who has worked as a performer and musician for so many years with the BBC, has suffered distress.
"The BBC has a duty to report on matters of public interest. As we have said before, once the South Yorkshire Police had confirmed the investigation and Sir Cliff Richard's identity and informed the BBC of the timing and details of the search of his property, it would neither have been editorially responsible nor in the public interest to choose not to report fully the investigation into Sir Cliff Richard because of his public profile.
"The BBC, at every stage, reported Sir Cliff's full denial of the allegations.
"The BBC, therefore, stands by the decision to report the investigation undertaken by the South Yorkshire Police and the search of his property."
Sir Cliff was investigated over allegations of sexual offences between 1958 and 1983, but the Crown Prosecution Service said last month it would not charge him due to lack of evidence.
South Yorkshire Police and Sir Cliff declined to comment.
