Uri Geller is to sue America's leading television news channel after it broadcast an allegation that he had betrayed his friend Michael Jackson for $200,000 (€130,000).

The legal action is the latest controversy to emerge from the claims and counter-claims arising out of the events that followed Jackson's death last year.

In his case for defamation, the psychic entertainer says he was the victim of a vicious email campaign after Michael Jackson's dermatologist publicly accused him on CNN of profiting from the controversial documentary of the pop star's life fronted by Martin Bashir. Geller, a British citizen, is bringing a High Court action in the UK after failing to win an adequate apology from CNN for what he says are totally false and unfounded allegations. The case concerns a broadcast in July when Arnold Klein, the star's former dermatologist, told veteran TV presenter Larry King that Geller had "sold Michael Jackson" to ITV for $200,000.

Klein said: "In that interview, Michael was sort of assured that he'd paint him as a normal person. And they painted him as an absolute strange person."

Geller, who categorically denies personally benefiting from the exclusive interview with Bashir shown in 2003, claims the broadcast triggered an online hate campaign.

Paul Tweed, Geller's solicitor, has written to CNN in Atlanta demanding an apology and substantial damages.

The letter says: "During the course of the interview Dr Klein made a number of false and grossly defamatory allegations about our client... that he cynically exploited his friendship with Michael Jackson for personal financial gain."

He adds: "For the avoidance of doubt, we would make it clear our client was not enriched in any way as a result of the Jackson/Bashir interview. Any monetary consideration our client received as a result of the introduction that he made in good faith between Martin Bashir and Michael Jackson was donated to charity in its entirety. The arrangement for all proceeds to go to charity had been firmly made prior to the programme being aired."

The case is seen as a test of America's battle with Britain over UK libel laws which allow claims to be brought in the UK against US media.

A number of US states, including California and New York, have brought in laws that block claimants from enforcing libel judgments won in UK courts against American defendants. The legal backlash against what has become known as "libel tourism" follows a series of high-profile cases in which US magazines and broadcasters, with limited circulation and coverage in the UK, have been ordered to pay hundreds of thousands of pounds of damages to non-British citizens by the UK courts.

But lawyers argue that the US attempt to protect free speech by closing the door on UK libel claims is denying justice to British citizens who have a right to defend their reputation. CNN has "widespread" coverage in the UK which is facilitated by Sky and Virgin, who will also be joined in these proceedings.

ITV has confirmed it will repeat the 2003 Bashir documentary Living with Michael Jackson but without the controversial segment in which a 12-year-old boy talked about the singer.