"I ask Naqvi to either give me proof or apologise. A defamation notice has been prepared and will be sent to him through my lawyers," Ali said at a press conference.
"I am ready to hang myself if he (M.A. Naqvi) can prove my relations with any terrorist," added Ali.
Ali's membership of the BJP was cancelled soon after he joined the party, following protests from Naqvi who called Ali a friend of Indian Mujahideen co-founder Yasin Bhatkal.
Ali's wife Yasmin, who was present at the press conference, also demanded an apology.
"I am giving him (Naqvi) 24 hours to tender an apology or I will sit on dharna outside his house," she said.