A Welsh Government-commissioned panel described the body as "lacking skills and experience" to spend public money.
It led to Economy Secretary Ken Skates announcing some of its responsibilities would be transferred to the Welsh Books Council.
But chairman Damian Walford Davies has issued a strongly-worded statement rebuffing the report.
He described the analysis as "hostile", "under-researched" and "strewn with errors".
"As chair, I refute in the strongest possible terms the panel's misinformed depiction of Literature Wales - something that should be of acute concern to the sector as a whole," he said.
"I have full confidence in my dynamic and diverse board of directors and in the excellent and dedicated team of expert staff who share my own vision of literature as a multi-form force for individual imaginative growth and social change.
"Through literature, and a democratised conception of who has the power and ability to 'write', Literature Wales will continue to engage and empower the many, rather than servicing the few.
"Literature Wales looks forward to continuing its ongoing dialogue with the sector and the Welsh Government in the light of the above."
Speaking when the report was published, Mr Skates said the changes were in "response to specific needs in a specific area of activity".
"They are not a reflection on the wider work of the arts council and my appreciation of the good work that Literature Wales has delivered in some areas," he added.
"However, I am persuaded that these steps are needed to create a support structure for publishing and literature that is more effective and fit for purpose."
A report which criticised Literature Wales was " inaccurate and ill-informed", its chairman has said.