The man, who has not been named, contacted Sir Cliff Richard's PR team after watching footage of South Yorkshire Police raiding his home amid child sex abuse allegations.
He told Sir Cliff's staff that he would spread false allegations against the singer unless he was paid, the Sunday People reported.
Police then arrested him on suspicion of blackmail and ordered him not to contact Sir Cliff's team again. It subsequently dropped the blackmail case against the man.
He then made sex abuse allegations against Sir Cliff to South Yorkshire Police, who are reported to have included them on their file of evidence given to the CPS, which decides whether to prosecute an individual or not.
After a two-year investigation which has seen police spend around £800,000 and the nation watch a live police raid on his home, forces announced last Thursday that there was 'insufficient evidence' to prosecute Sir Cliff.
The Christian musician has never been arrested or charged and has always maintained his innocence throughout the investigation.
The Chair of the Home Affairs Select Committee Keith Vaz and the former Solicitor General Sir Edward Garnier have both criticised South Yorkshire Police for not making it clear enough that Sir Cliff is totally innocent of all the accusations made against him.
It's also emerged that another person who made child sex abuse allegations against Sir Cliff is serving several life sentences for several sex attacks and suffers from mental health problems.
In a statement after it was announced he would face no further investigations, Sir Cliff said: "Other than in exceptional cases, people who are facing allegations should never be named publicly until charged. I was named before I was even interviewed and for me that was like being hung out like 'live bait'.
"It is obvious that such strategies simply increase the risk of attracting spurious claims which not only tie up police resources and waste public funds, but they forever tarnish the reputations of innocent people.
"I know the truth and in some peoples' eyes the CPS' announcement today doesn't go far enough because it doesn't expressly state that I am innocent; which of course I am. There lies the problem. My reputation will not be fully vindicated because the CPS' policy is to only say something general about there being 'insufficient' evidence. How can there be evidence for something that never took place!
"This is also a reason why people should never be named publicly until they have been charged unless there are exceptional circumstances."
Premier has contacted South Yorkshire Police for comment.
