The Prince of Wales received a payment of £1m from the family of Osama Bin Laden.
Prince Charles accepted the money from two of Osama Bin Laden's half-brothers in 2013, two years after the al-Qaeda leader was killed, BBC reported quoting The Sunday Times.
The Prince of Wales's Charitable Fund (PWCF) received the donation.
Clarence House said it had been assured by the PWCF, that "thorough due diligence" had been conducted, and the decision to accept the money lay with the trustees.
The future king agreed to the money despite the initial objections of advisers at Clarence House and the Prince of Wales Charitable Fund (PWCF), where the offering was donated.
Clarence House also said it disputed a number of points made in the newspaper's article.
According to The Sunday Times report, Prince Charles accepted the money from Bakr Bin Laden, who heads the wealthy Saudi family, and Bakr's brother Shafiq, following a meeting with Bakr, 76, at Clarence House in London on 30 October 2013, two years after Osama bin Laden was killed by US special forces in Pakistan.
The heir to the throne took the money despite objections from advisers at Clarence House and PWCF, the newspaper reported citing multiple sources.
However, Sir Ian Cheshire, chairman of PWCF, told the newspaper that the 2013 donation was agreed "carefully considered" by the five trustees at the time.
"Due diligence was conducted, with information sought from a wide range of sources, including government," Sir Ian added.
"The decision to accept the donation was taken wholly by the trustees. Any attempt to suggest otherwise is misleading and inaccurate."
The PWCF provides grants to UK-registered non-profit organisations to carry out projects in the UK, Commonwealth, and abroad.
A source at the Prince of Wales's Charitable Fund told media that "the sins of the father" - that's Osama Bin Laden - should not disqualify other members of the family from making a donation. Which makes sense.
A PWCF source told the BBC that "though the name [Bin Laden] has very unhappy history, the sins of the father should not be visited on the rest of the family, which is an eminent one in the region."
The source added that the donation had been cleared by the Foreign Office.
This is not the first time that Prince Charles or his charity have been scrutinised over its donations.
Prince Charles accepted a suitcase containing a million euros in cash from a former Qatari prime minister - one of three cash donations totalling around £2.5m.
Clarence House said at the time that donations from the sheikh were passed immediately to one of the prince's charities and all the correct processes were followed.
The Charity Commission later decided against launching an investigation into the donation.