The Oscar winning star was "no longer in control of his senses" according to an article quoting Caine in German newspaper Bild am Sonntag.
However, a spokesman for Sir Sean last night refuted the claims and said Caine had been misquoted. He added: "The same article also has Sean living in Spain, where you all know he does not live.
"This [article] is truly silly and nonsense. I do not wish to give credence to this ridiculous story."
Caine, who became friends with Connery star during the filming of the 1975 epic The Man Who Would King, is quoted in the piece as saying Sir Sean's memory loss was noticeable and only close friends and family had access to him.
The newspaper claimed Caine had said: "One must have serious concerns for him."
Caine was reported to have said Connery's wife Micheline Roquebrune, 77, was always frightened to pick up the phone when he was on the streets of Manhattan in New York in case of bad news. The inference was that he sometimes could not find his way home.
Connery, 83, told a newspaper two years ago that he no longer had any interest in acting.
Although the last time Connery appeared before the cameras was in 2003, for The League of Extraordinary Gentlemen, he has been working with a Glasgow animation company on a new animated feature called Sir Billi, for which he is providing the voice for the title character, a skateboarding Highland vet. The movie is due to be released next month.
Connery is said to have called time on his acting career on his 80th birthday, but had continued to make public appearances until two years ago. He now spends much of his time in the Bahamas.
The 83-year-old has had a series of health problems. He has high blood pressure and undergoes checks on his throat after surgery in the 1980s. In 2003 he reportedly had cataracts removed from both eyes, while in 2006 he underwent surgery in New York to remove a benign kidney tumour.
The next year there were more concerns after he pulled out of hosting the Dressed to Kilt event as part of New York's Tartan Week. It was suggested he was too tired to attend but the star said it was down to a scheduling clash.
In 2008 he fell and chipped a bone in his shoulder in New York. He later appeared at the Edinburgh Film Festival with his arm in a sling.
The following year, the keen golfer was diagnosed with a heart condition and later, in 2010, there were further fears for his wellbeing when he cited undisclosed health reasons for missing a court hearing in Spain.
He was one of 20 people called to give evidence over the sale of a private villa that was subsequently demolished to make way for flats valued at £45 million.
Two years ago there was speculation he had officially stepped out of the spotlight after he again unexpectedly bowed out of the Dressed to Kilt event in New York.
Organisers of the annual Scots fashion extravaganza in Manhattan received a late call to say the actor would not be appearing. His publicist Nancy Seltzer reportedly said then he had "retired from public appearances".