The small patch of land inside Syria around the tomb of Suleyman Shah -- the grandfather of the founder of the Ottoman dynasty Osman I -- is considered Turkish territory under a 1920s treaty signed between the Turkish authorities and France, who then ruled the country.
The tomb is guarded by several dozen Turkish troops and lies around 20 kilometres south of the Turkish border on the Euphrates river.
The pro-government Yeni Safak daily had reported earlier this week that the tomb had been surrounded by over 1,000 IS jihadists and suggested several dozen Turkish troops guarding the tomb had even been taken hostage.
But Erdogan vehemently denied that this was the case: "All these things that are being said (about the tomb) are made-up," he said, quoted by the official Anatolia news agency.
In a clear warning to IS that Turkey would respond if the Suleyman Shah tomb was attacked he said: "It is clear what steps we will take if something happens to the tomb.
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"This remains for us a sensitive issue," he added, speaking at an evening reception after the opening of parliament.
Deputy Prime Minister Bulent Arinc had on Tuesday insisted that the Turkish troops were still in control of the tomb but acknowledged that it was true the IS jihadists had been advancing on the territory.
The Hurriyet daily reported earlier that a meeting of top security officials Tuesday, including Turkey's top general Necdet Ozel, had discussed measures in case of an attack, and resolved to use attack helicopters to repel IS militants.
The Milliyet daily said that Turkey has recently deployed an additional 50 troops to the tomb to ensure its security.
The concerns about the security of the Suleyman Shah tomb come as the Turkish parliament on Thursday prepares to approve a government request to allow military intervention in Syria and Iraq to fight the rise of IS.