Jonah Lehrer admitted to making up and misattributing quotes about the music legend in his third book, Imagine: How Creativity Works.
The 31-year-old science writer eventually confessed to the act after he was pushed by Tablet reporter Michael Moynihan - a self-described Dylan obsessive - on previous allegations that he had faked quotes for New Yorker blogs.
In a statement issued by his book publisher Houghton Mifflin Harcourt, Lehrer acknowledged that the Dylan quotes "either did not exist, were unintentional misquotations, or represented improper combinations of previously existing quotes".
He also admitted to lying several weeks ago when he informed Moynihan that the Dylan quotes were authentic and had been taken from archive interview footage supplied by the musician's representatives.
"This was a lie spoken in a moment of panic. When Mr Moynihan followed up, I continued to lie, and say things I should not have said," he confessed.
Imagine, which focuses on the science behind creativity, went straight in at the top spot on the New York Times non-fiction bestseller list.
However, Houghton Mifflin Harcourt said that it has now stopped digital sales of the book, and halted shipments of the physical version.
"In light of the serious misuse of quotations... we are exploring all options available to us," said the publisher.
"We are taking the e-book of Imagine off sale, and halting shipment of physical copies."
The scandal about the quotes also prompted Lehrer to resign his post at The New Yorker, after he only joined the publication as staff writer in early June.
David Remnick, editor of The New Yorker, said that it was a "terrifically sad situation".
"In the end, what is most important is the integrity of what we publish and what we stand for," he said.