The minister for tribal welfare reportedly urged the party leadership to sack both Satyanarayana and the chief minister.
The letter has embarrassed the party only days after the central leadership ruled out any change in the state.
Satyanarayana told reporters that he did not believe that Deo could send such a letter.
He threatened to initiate legal action against a newspaper which carried the report. "I don't believe a senior leader like Mr. Kishore Chandra Deo can write such a letter. This is a false and baseless report," he said.
Talking to reporters in Delhi, Deo also denied writing any letter to the Congress leadership.
Congress spokesman Sandeep Dikshit said he had no knowledge of any such letter. "If he has written a letter, it is his personal view," he said, while referring to party general secretary Gulam Nabi Azad's statement made last week, ruling out a change in the state leadership.
According to the report, Deo, who represents Araku constituency in coastal Andhra, called Satyanarayana "the don of liquor, land and mining mafia" in the state.
Deo also reportedly targeted the chief minister calling him "ineffective". He said that Reddy failed to carry his cabinet colleagues and party leaders with him.