Hindraf, which organised anti-discrimination protests in November that were broken up with tear gas and water cannon, has been accused of seeking support from the Tamil Tigers of Sri Lanka.
Its leaders could be dealt with under the Internal Security Act (ISA) which allows detention without trial.
Malaysia's ethnic Indians, who make up eight per cent of the population, are mostly Tamils.
Security threat
"ISA is an option," Abdullah said according to the newspaper. "I will decide when the time is right.
"If they are deemed (as a threat to national security) we will know what to do."
Nazri Abdul Aziz, a cabinet minister, reportedly said Hindraf would be banned if it was found to be supported by such groups as the Liberation Tigers of Tamil Eelam (LTTE) and the Rashtriya Swayamesevak Sangh (RSS) of India.
"If it is true that Hindraf leaders have links with them, Hindraf is also a terrorist group," Abdul Aziz, the de facto law minister, was quoted by the Star daily as saying.
P Waythamoorthy, Hindraf's chairman, in turn filed a police report on Saturday against Badawi, his attorney-general and the police chief for claiming his protest group has possible terrorist links.
Conspiracy
Waythamoorthy, who is overseas lobbying international support for the group, said the Malaysian government was conspiring against them.
"This is a state conspiracy to divert from the real issue of the oppression, marginalisation and suppression of the minority Indian community," he said in a statement.
"Hindraf will continue its peaceful struggle both locally and internationally."
On Friday, the Malaysian government sought to overturn a decision that allowed three Hindraf leaders, including Waythamoorthy, to walk free from sedition charges related to speeches they made last month.
The speeches criticised Malaysia's system of preferential treatment for Malays, who make up 60 per cent of the population. The court has adjourned the hearing until Monday.