Responding to a report in The Sunday Times, the unnamed Israeli official told Ynetnews.com that no agreement on Syria had been reached between Jerusalem and Moscow.
The Sunday Times said an agreement was reached between Israeli Prime Minister Binyamin Netanyahu and Russian President Vladimir Putin this month at the Black Sea resort of Sochi.
"This story is detached from reality. A fairy tale. There was no agreement or understanding between Putin and Netanyahu. That's another piece of fantasizing," the official told Ynetnews.com. "It's likely there would be a great deal of foot-dragging by the Russians, who would use it as a bargaining chip without following through with the deal. Only time will tell."
Putin agreed to Netanyahu's request to cancel the deal on the condition that Israel refrain from waging attacks on Syrian soil, the Times said.
The British newspaper said Netanyahu stressed that the sale of the S-300 missile defense system to Damascus could push the Middle East into war. He warned in the event Moscow goes ahead with the deal, flights landing or taking off from Israel's Ben-Gurion International Airport would be within the rockets' range.
Damascus signed a contract with Moscow in 2010 to purchase four S-300 missile defense systems for about $800 million, Ynetnews.com said, noting that Moscow last year postponed the delivery of the first batch at Israel's request.