It comes after an Australian tabloid published claims that the late Tongan king and a former diplomat helped to conceal the killing of George Brown.
Australian police believe Mr Brown was tortured and murdered in 1984 by members of the horseracing community.
The case, which rocked the industry, has never been solved.
Mr Brown's body had been found in a burnt car in bushland south of Sydney, with signs that he had been assaulted before his death.
Over the years, police have considered various theories for his murder, including a possible race-fixing dispute and the poor performance of his horses.
On the weekend, the Herald Sun newspaper claimed that Bill Waterhouse, a famous Australian horse-racing bookmaker who was also Tonga's honorary consul-general to Australia, was involved in covering up Mr Brown's killing.
It alleged that several Tongans had murdered Mr Brown, and that Mr Waterhouse and the then Tongan King Taufa'ahau Tupou IV helped the killers escape.
The newspaper said the report was based on statements to police by Mr Waterhouse's youngest son.
In a statement released on Tuesday and given to the BBC, the palace said they "strongly denied" any connection to the murder.
It added that the allegations were a result of a "sad, long-running and bitter family dispute".
Bill Waterhouse's widow also told the newspaper Matangi Tonga that there was "no truth to the stories".
Mr Waterhouse, who died in 2019, was the patriarch of a famous family dynasty that remains highly influential in Australian racing and bookmaking.
He was banned from bookmaking for 14 years over his involvement with a race-fixing scandal in the 1980s.
He had close ties with Tonga's King Tupou, who died in 2006.