Shehbaz Sharif, the chief minister of Pakistan's Punjab province, said that Khan had levelled corruption allegations against his family without providing any evidence.
His comments came amidst riling political environment in Pakistan ahead of major opposition protest against the government on November 2.
"I am going to file a defamation suit of worth Rs 26 billion...Against Imran in the court of law for his blatant lies and allegations," Shehbaz said in a tweet.
Khan in his allegations said that Javed Sadiq and executive director of China State Construction Engineering Corporation were working for Shehbaz and making billions of rupees in commission.
Sadiq in a TV talk show rejected the allegations.
"I know him [Shehbaz Sharif] since late 2008 and he never allotted me any tender or project," said Sadiq.
Khan, the 64-year-old Pakistan Tehreek-e-Insaf chairman, has threatened that he would force Prime Minister Sharif to resign through protests starting next week.
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