Internet content provider The Opinion Collaborative (TOC Ltd) intends to contest an order from the authorities that it return $5,000 it received from a British company.
It has asked the Media Development Authority (MDA) the reasons for the demand.
TOC Ltd also said on Wednesday that it will decide whether to return the money after the MDA replies.
When contacted on Wednesday, an MDA spokesman said: "We have received the letter and will reply to TOC Ltd in due course."
TOC Ltd took the money from the Monsoons Book Club (MBC) in a sponsorship deal for an online essay competition it organised last year, when it was still running the socio-political website The Online Citizen. It stopped doing so last September.
The MBC is a non-profit company which has Singapore fugitive Tan Wah Piow as one of its directors.
As TOC Ltd is registered as an Internet content provider discussing political issues on Singapore, it is not allowed to receive funding from foreign sources for the provision, management and operation of the website, "except for bona fide commercial purposes", the MDA said last week.
"MBC is a non-commercial foreign entity incorporated in the United Kingdom. TOC Ltd's receipt of the advertising revenue from MBC Ltd is thus a clear breach of the licence condition," the MDA added.
But in its letter to the MDA on Wednesday, TOC Ltd asked why the MDA had labelled its advertising agreement with MBC as "not for bona fide commercial purposes".
Another question it raised is why MBC is classified as a "non-commercial foreign entity", and asked for examples of other such organisations.
TOC Ltd also pointed out that it had received the funds in April last year and notified the MDA of the money within a month. Yet the MDA's order to return the funds came only 11 months after, it added.
Mr Howard Lee, one of TOC Ltd's four directors, said this effectively meant that his company was expected to not use the money during the period in the event that MDA demand the funds to be returned, as it has done so now.
"We cannot expect MDA to hold us to ransom indefinitely," Mr Lee told The Straits Times.
In its statement last week, the MDA had given TOC Ltd 30 days to return the money.
In the light of the 30-day deadline, TOC Ltd asked the MDA to reply to its letter by March 17.