The Sunday Times newspaper said the message in the charity card sold by British supermarket giant Tesco read: "We are foreign prisoners in Shanghai Qingpu Prison China. Forced to work against our will."
It said the message urged whoever received it to contact Peter Humphrey, a British former journalist and corporate fraud investigator who was imprisoned in the same jail from 2014-2015.
Tesco suspended the Chinese supplier of the Christmas cards on Sunday and said it had launched an investigation.
China's Foreign Ministry spokesman Geng Shuang told a press briefing: "I can responsibly say, according to the relevant organs, Shanghai's Qingpu prison does not have this issue of foreign prisoners being forced to work."
He dismissed the whole story as "a farce created by Mr. Humphrey." Humphrey did not immediately respond to requests for comment on the ministry's statement.
Humphrey spent 23 months in prison on charges of illegally obtaining private records of Chinese citizens and selling the information to clients including drugmaker GlaxoSmithKline.
The Sunday Times said the message had been found by six-year-old Florence Widdicombe who showed it to her father. He then contacted Humphrey via LinkedIn.
Writing in the Sunday Times, Humphrey said he did not know the identities or the nationalities of the prisoners, but he "had no doubt they are Qingpu prisoners who knew me before my release in June 2015."Humphrey said during his trial he had not thought his activities in China were illegal.