The decision to include British singer Yusuf Islam, formerly known as Cat Stevens, on a US terrorism "watch list" is now under review.
Yusuf Islam said he was told that the order had come from "on high"
"I think we have that obligation to review these matters to see if we are right," said US Secretary of State Colin Powell.
The 57-year-old was refused entry to the US last week. Authorities said it was on national security grounds.
The FBI told him to leave the country after he tried to fly to Washington.
Mr Powell said the review of the case was not because of the publicity surrounding it, saying he undertook reviews, "not only with celebrities such as Mr Stevens, but for the average citizen coming across who gets stopped".
"We want to secure our borders but we want also to make sure that we remain an open nation," he added.
The singer converted to Islam in 1977
UK Foreign Secretary Jack Straw complained to Mr Powell about the incident last week.
The case of another prominent Muslim, professor Tariq Ramadan, is also under review.
Yusuf Islam announced last Friday that he would be taking legal action.
"I was not given any explanation as to what it is I am accused of, or why I am now deemed an apparent security threat," he said.
"I was simply told that the order had come from 'on high'.
"We have now initiated a legal process to try to find out exactly what is going on, and to take all necessary steps to undo the very serious, and wholly unfounded, injustice which I have suffered."
As a singer Cat Stevens had a string of hits in the 1960s and 1970s, including Moon Shadow, Wild World and Morning Has Broken.
He grew up in London above a West End restaurant owned by his parents.
He became interested in rock music in his teens while attending Hammersmith College in London and began performing in 1965 under the name Steve Adams.
He abandoned his music career in the late 1970s, and founded a Muslim school in London in 1983.