He claimed that he made comments to a Sunday Herald journalist who "extrapolated" from this and "contrived an article from conjectural comments".
In a newspaper interview, General Secretary of the Orange Lodge of Scotland, Jack Ramsay, said that under extreme circumstances the lodge could be driven underground and attract paramilitary members.
Mr Ramsay told BBC Radio Scotland that the remarks were taken out of context.
He said: "My comments were made in the context of musing over the position of the Orange Order in an independent Scotland at some indeterminate period in the future."
He claimed that he made comments to a Sunday Herald journalist who "extrapolated" from this and "contrived an article from conjectural comments".
Mr Ramsay added: "I regret in retrospect allowing myself to be led into commenting on such a purely hypothetical subject."
The interview had claimed that Mr Ramsay said the Orange Order could become a Protestant paramilitary force in an attempt to retain its Britishness if Scotland became independent.
He is reported to have said the Scottish National Party (SNP) was a "threat to Scotland and Britain".
He said: "The Orange Lodge would become a paramilitary force, if you like. It obviously implies a recourse to arms ... we'd have a group of people who would be pro union."
Public relations
The Orange Order, which exists to promote the Protestant cause and preserve the Union, has around 50,000 members in Scotland.
Mr Ramsay's comments come as the Orange Order in Scotland planned to hire public relations consultants to overhaul its image.
SNP deputy leader and shadow justice minister Roseanna Cunningham said it was "an extraordinary statement".
She said: "Ramsay has done more in one sentence to destroy his organisation than years of political criticism ever could.
"Obviously this statement will have to be examined closely by the authorities to see if making these claims is a criminal offence."
Police sources said they would look at Mr Ramsay's statement in the light of the Terrorism Act 2000.
Peter Kearney, the Catholic Church in Scotland's official spokesman, said: "Jack Ramsay's comments are utterly unbelievable.
"There is nothing to stop people defending their Britishness legally. Even the Boers in South Africa defend apartheid within legal boundaries."