Doug Ford suggested two weeks ago that Chief Bill Blair helped leak information that police were preparing to subpoena the mayor in an ongoing investigation as "payback," although he declined to elaborate on what he meant.
At the time, Blair said Ford was lying and warned he was prepared to take legal action.
Toronto police spokesman Mark Pugash said the defamation notice was handed to the councillor on Monday night.
"What the notice specifies is a public retraction and apology in a forum to be agreed (upon) beforehand by Chief Blair," he said. "There's no mention of money at all in the document."
Pugash added that the legal action is being pursued by Blair personally, and doesn't involve taxpayer money.
"The next step is with the councillor," Pugash said.
Doug Ford said Tuesday that the issue was with his lawyers and refused to directly answer questions about whether he would apologize to Blair.
"There is no lawsuit as far as I know," he said.
The councillor also criticized Pugash's role as a spokesperson for Blair's "private issues."
At a news conference at his campaign headquarters, Mayor Ford said he couldn't comment on the matter.
"The issue is between the chief and my brother," he said.
"I've said what I had to say about the chief. I wish him the best of luck, I want to thank him for his service and that's all I can say," Rob Ford said, although he added he was "baffled" that the media found out about the notice of defamation so soon after it was served to his brother.
On Aug. 1, the Toronto Star cited sources saying police were preparing to subpoena the mayor to testify at a preliminary hearing for his friend Alessandro (Sandro) Lisi, who is facing drug and extortion charges.
Doug Ford blamed the apparent leak on Blair, calling it politically motivated.
"When you tell the media there's a subpoena and don't tell anyone else? That alone says it all right there. That says it all," he said at the time."It's disappointing that the police chief, in my opinion, would condone this behaviour from his own department.''
Toronto's police services board had announced earlier that week that Blair's contract would not be renewed, effectively terminating his position as of next April.
Rob Ford has publicly criticized Blair ever since a police investigation last year turned up a video which appeared to show the mayor smoking crack cocaine.
At a news conference last October, Blair had said he was disappointed at what the video showed.
The mayor, who later admitted to smoking crack cocaine in a "drunken stupor,'' has publicly accused Blair of wasting taxpayers' money with the investigation and challenged the chief to arrest and charge him.