Reports in The Sun on Sunday today (Sunday, April 6) suggested that a “furious” Simon Cowell fired Mr Arthur, 26, over a track in which he raps “I’m going to blow up your family like I’m a terrorist.”
But his sister Sian Arthur took to social media site Twitter to deny the reports.
“James hasn’t been dropped by Simon Cowell,” she tweeted. “No idea where they get their info from. Even if he did there are plenty of labels waiting for him.”
Mr Arthur, from Saltburn, East Cleveland, did not issue any denials about being fired - except to say his song did not promote terrorism and was from the point of view of a “demented fan”.
But the newspaper reported quoted a music source as saying: “It feels like the end of the road for him at Syco. James has been his own worst enemy.
“He has done himself no favours with his outbursts. It’s as if he’s almost willing Syco to drop him.
“Simon and Syco have been extremely loyal to James throughout his problems but there’s only so much they are prepared to put up with.”
Arthur has been a controversial figure since winning the X-factor in 2012. Last month his single, Get Down, failed to make the top 40.
Mr Cowell said: “Somebody should have told him to just shut up and put the records out” after the singer criticised the X Factor for producing male winners that were not “believable” and look “like puppets.
He has also criticised boyband One Direction, his record label’s biggest success story.
Syco has declined to comment so far.
Mr Arthur’s mother, Shirley Ashworth, was not available for comment when contacted by The Northern Echo.