Cambridge Tory Chamali Fernando's lawyers have demanded an apology from Lib Dem candidate Julian Huppert.
Ms Fernando claims she was misquoted in criticism by Mr Huppert after a debate in the city where they both spoke.
He confirmed receiving a legal letter and said he was taking advice.
Mr Huppert said: "I have received a letter from Chamali Fernando's solicitor threatening legal action.
"I have instructed a solicitor and I am taking legal advice on this matter."
Ms Fernando said she had answered a question at the hustings about the way mental health was treated, with particular reference to the holding of mentally-ill people in police cells.
She said at the time: "I would like to see more training for legal professionals and police officers.
"Maybe something as simple as there are certain conditions which are more common where people can wear a wristband to identify they have a condition, so then we can perhaps spot it earlier, and ensure we can deal with it.
"There are a variety of measures we can look at, but again this is something where we need to work together."
Her agent Chandila Fernando said the candidate was demanding an apology and Mr Huppert had been given until 16:00 BST on Tuesday to respond.
Rupert Read from the Green Party, Daniel Zeichner from the Labour Party, Keith Garrett of Rebooting Democracy and Patrick O'Flynn from UKIP are also standing for the Cambridge seat at the General Election.
A parliamentary candidate who suggested people with mental health issues could wear identity wristbands to prevent communication issues has threatened legal action against a rival.