Smith says a member of Prentice's inner circle has approached someone on her team pitching a merger should Prentice win the Progressive Conservative leadership contest.
She said her answer was a categorical no.
She also said the idea makes Prentice, the perceived front-runner in the Tory race, look weak.
"Jim Prentice is taking entitlement to a whole new level," said Smith.
"He thinks that he should be able to walk in without facing a leadership contest among the other PC candidates, and he thinks that we should clear the way for him and pack up our tent and go away so he can become premier without opposition.
"If he wants to become premier, he should face the challenge, and he's going to face a tough challenge from the Wildrose in the next election."
Smith refused to identify the person in the Prentice camp who pitched the idea.
"Mr. Prentice knows who called me," she said.
"I guess I'm just not interested in seeing another denial."
Prentice, 57, is expected in the coming days to formally announce he will vie to replace former premier Alison Redford.
The race officially begins Thursday and right now it is shaping up as a two-candidate contest between Prentice and Calgary MLA Ric McIver.
McIver and another potential candidate, Jobs Minister Thomas Lukaszuk, have said they've had pressure to leave the race, but didn't say it was coming directly from the Prentice camp.
Patricia Misutka, Edmonton campaign chairwoman for Prentice, said that no one from his team has been urging any candidates to quit and no one has been pitching a merger.
"Nobody from (Prentice's) campaign has approached or spoken to Danielle Smith or anybody related to her," said Misutka.
"We're very focused on putting together the mechanics and plans for our own campaign.
"It's a pretty irresponsible thing for (Smith) to cast a rumour like this about without any verification or any ability to do anything except to cause mischief."
Misutka said the allegation says more about the Wildrose than it does about Prentice.
"It might very well speak to Wildrose concerns about the fact that everybody is pretty much talking about Jim Prentice right now in this province and his coming campaign."
Dave Hancock, who is premier until a new PC leader is chosen, agreed that the merger rumour is all about Smith seeking attention.
"I think it's absolutely amusing that political scientists and the leader of the Opposition want to make up stories around things because they don't see their own place in the game," he said.
"Obviously she's feeling left out of the process."
Prentice is a former federal cabinet minister and Calgary-area MP. Fourteen Tory MLAs have already pledged to support him when the vote is held in September. On Wednesday, Human Services Minister Manmeet Bhullar confirmed on Twitter he will be one of the campaign organizers for Prentice.
A spokesman for Hancock said Bhullar will not have to step down from cabinet to run the campaign but all MLAs will be expected to keep a firewall between their work with government and work on the leadership race.
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