Matisyahu, a reggae singer, had been due to appear at the Rototom Sunsplash near Valencia on 22 August.
But he says he was asked by organisers to state his "positions on Zionism and the Israeli-Palestinian conflict".
In a post on his Facebook page, Matisyahu said the pressure to air his views was "appalling and offensive".
A campaign to cancel Matisyahu's appearance was launched by the Valencia branch of the Boycott, Divestment and Sanctions (BDS) campaign.
The pro-Palestinian group calls for a boycott of Israeli goods until it complies with international law - Israel calls the campaign misleading and anti-Semitic.
BDS Valencia said that, because of some of Matisyahu's previous comments he had made on Israeli affairs, his values did not tally with those of the festival, namely "peace, equality, human rights and social justice".
The festival's organisers said Matisyahu's appearance was cancelled after they had "repeatedly sought dialogue in the face of the artist's unavailability to give a clear statement against war and on the right of the Palestinian people".
"The festival kept insisting that I clarify my personal views; which felt like clear pressure to agree with the BDS political agenda," Matisyahu - whose real name is Matthew Miller - wrote on his Facebook page.
"Honestly it was appalling and offensive, that as the one publicly Jewish-American artist scheduled for the festival they were trying to coerce me into political statements."
The singer, born in Pennsylvania, said he did not insert politics into his music, and that he wanted it to be accessible to all.
Ronald Lauder, president of the World Jewish Congress, criticised the decision and urged Spanish authorities "to take appropriate action against those responsible for it".
The Spanish Federation of Jewish Communities said the move was "cowardly, unfair and discriminatory".
The festival's organisers have since tried to dampen the controversy, saying in a statement: "We did not say no to Matisyahu because he has Hebrew roots or as a Zionist, but we just simply considered inappropriate organising something that would certainly generate a conflict."
Jewish groups have criticised a Spanish festival for cancelling an appearance by a Jewish-American singer because he refused to air his political views.