Supervision without being a member of the research group
As far as I can tell, this is probably fine - it is definitely not a "polite rejection" unless you missed a lot of signs that the professor is too busy to work with you. 

svavil's question is very relevant: if you are working on a broadly different topic than the rest of the research group, you wouldn't gain as much, and the research group wouldn't gain as much from you being there.

Even if you are close to the research group's topics, some professors will start beginning students off without the rest of the group. This way, early students can benefit from more focused attention, and the group meetings don't have to catch up the new students.  I think this approach is more often taken in theoretical/computational science groups.  As students move along, they are brought more into contact with the group.  [*caveat = this last is based on my experience in groups that are mostly PhD students, so not sure if Masters research is similar.]

There are two possible ways I could see this being bad (both of which happen, but are not the majority of cases):

1) The professor doesn't actually have time to work with you, and you will have trouble scheduling meetings with him, and making progress.

2) The professor is isolating you because he plans on harassing you, e.g. as mentioned re "independent studies":  http://www.slate.com/articles/double_x/doublex/2016/04/ban_the_independent_study.html