Ron Cantrell, 59, and his wife Carol, 54, have run a small Jerusalem-based ministry, Shalom Shalom Jerusalem, for the past four years. Cantrell previously worked for Bridges for Peace, an evangelical organization, for 14 years.
Two of the couple's children have married Israelis and have Israeli ID cards.
Interior Ministry officials said the decision was made following suspicions that Cantrell was involved in missionary work. The pastor categorically denied the allegations as baseless.
Cantrell, who has been active in raising money for Israel as well as working on behalf of Soviet Jews, had resided in Israel on a special clergy visa during his work for Bridges for Peace, but then went back to a regular tourist visa, which needed to be renewed every three or six months, he said.
The highly-coveted but sparsely-distributed clergy visa is primarily given to officials from mainstream Christian organizations.
Cantrell, who travels extensively on lecture tours, could have continued living in Israel if he had left the country at least once every three months, but said that was an "unworkable solution" for his wife.
Cantrell said the Interior Ministry had cited no reason for rejecting the residency request.
Interior Ministry spokeswoman Sabine Haddad said that the couple's request to receive residency status, after residing in Israel for years on various temporary permits, had been brought before all ministry levels up to the acting head of the population authority, who was also the director-general of the office.
The request was turned down last month, she said. Ministry officials cited suspicions of missionary work.
The Shalom Shalom Jerusalem Web site says that the couple "encourages Christians and Messianic Jewish believers in their understanding of the prophetic Scriptures" and "encourages believers to participate in God's end-time plans by being involved in positive support for the nation of Israel and Jewish communities worldwide ... in the regathering of the Jewish people to their homeland."
The issue underscored the delicate balancing act evangelical Christian supporters of Israel face, between proselytizing, which is banned in Israel, and their fundamental belief that the return of the Jews to the Holy Land was foretold in the Scriptures and heralds the return of the messiah.