"We are not dating but just very close," Montag told Us, adding she finds the romance rumors "funny."
"I was shocked because we were such close friends, and I had no idea that anyone else thought there was anything romantic going on. People in camp joked about it, but we knew it was a joke so it was funny to us."
Both The Hills star and former American Idol finalist previously denied they were romantically involved after being eliminated from NBC's I'm a Celebrity... Get Me Out of Here!revival last month.
However the two traveled together to Hawaii on June 27, OK! Weekly reported in its July 20 issue, adding Montag posted on her Twitter account that it was "so wonderful to be with my bf!" -- with "bf" standing for either boyfriend or best friend, further clouding the rumors.
"We will continue our friendship forever," she told Us before emphasizing the point. "Sanjaya came out to visit me last week!"
In addition, Heidi and Spencer Pratt previously told Us that they were "very excited" about Montag and Malakar becoming a couple.
"I will very happily hand the famed cup of superstar couple on planet Earth to Sanjaya and Holly in a second," Spencer told Us.