Adult entertainment company Vivid approached the Australian performer in an effort to broker a million dollar deal to release to leaked footage.
However, a rep for the 24-year-old claims that the woman featured in the video is NOT Iggy Azalea, and the star has even threatened to sue the company should they release the video.
KENDALL JENNER AND IGGY AZAELA SHOW OFF 'PELVAGE' IN NEW RED CARPET TREND
Iggy is not the first famous face to be approached by Vivid over an alleged leaked sex tape.
Reality star Kim Kardashian first entered the public eye when she starred in a sex video with then-boyfriend Ray J. The tape was sold to Vivid and Kim went on to make millions from the tape after reaching a settlement.
IGGY AZALEA REFUSES TO CROWD SURF AS FANS 'KEEP TRYING TO SEXUALLY ASSAULT HER'
The sex tape rumours come just months after the rapper denied rumours that she posed for a naked photo with boyfriend Nick Young.
The picture appeared on Twitter, though the woman’s face was not visible.
The ‘Fancy’ singer took to the social networking site to shut down the rumours, writing: “ Anyway, that was cute guys. Try again soon. Better luck next time and all that…”