Ali was convicted in 1967 of refusing to report for military duty after being drafted into the Vietnam War. He declared himself a conscientious objector, citing religious reasons, but was sentenced to five years in prison and stripped of his heavyweight boxing crown.
Mr Trump said on his way to the G7 summit in Canada that his administration was "currently preparing recommendations" over Ali's case.
Mr Trump said he had a list of 3,000 names he is considering for pardon, many of whom have been "treated unfairly".
“[Ali] was, look, he was not very popular then, certainly his memory is popular now,” Mr Trump said of the late boxer.
The comments confused some, who pointed out that the US Supreme Court overturned Ali's conviction in 1971 – just four years after he was sentenced. President Jimmy Carter also granted a blanket pardon to all Vietnam War draft evaders in 1977.
Ron Tweel, an attorney for Ali's wife and estate, said he appreciated the president's comments, but that a pardon was "unnecessary".
"The US Supreme Court overturned the conviction of Muhammad Ali in a unanimous decision in 1971," he said in a statement. "There is no conviction from which a pardon is needed.”
Ali was born Cassius Clay, and changed his name after converting to Islam in the 1960s. He cited his religious beliefs in applying as a conscientious objector to the Vietnam War. In their 1971 ruling, the Court found that the government had failed to supply sufficient rationale for denying his conscientious objector status.
Ali served no jail time, and his criminal record was cleared. He died in 2016, at the age of 74.
Mr Trump has pardoned six people since taking office. White House aides previously told the Washington Post that Mr Trump had become "fixated" on his ability to pardon – an essentially unchecked power of the presidency that stands out among other issues, such as the Russia investigation, that remain outside Mr Trump's control.
Mr Trump posthumously pardoned Jack Johnson, the first black heavyweight boxing champion, last month. Johnson was convicted in 1913 of transporting a white woman across state lines – a Jim-Crow era ruling that many have come to see as a grave injustice.
Just this week, the president pardoned Alice Marie Johnson, a woman serving a life sentence for a nonviolent drug offence. Her case was championed by reality star Kim Kardashian, who met with Mr Trump at the White House to discuss her case, among other issues.
Mr Trump said on Friday that he was considering some 3,000 more people for pardons. He added that he may start taking suggestions from pro athletes who kneel during the national anthem to protest racial injustice.
"I'm going to ask them to recommend to me people that were unfairly treated, friends of theirs or people that they know about and I'm going to take a look at those applications,” he said.
The president also recently claimed he has the power to pardon himself, if he is convicted of a crime stemming from the investigation of his campaign's ties to Russia. The suggestion was roundly rebuked by both Democrats and Republicans, who said doing so would set a dangerous precedent.
Mr Trump has long denied any allegations of collusion with Russia.
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