The film, "One Nation Under Lee", was made by a group of political activists and looks at the rise of Lee and his relationship with the media, Chee Siok Chin, a senior member of the opposition Singapore Democratic Party (SDP), told Reuters.
It was screened to an audience of about 70 at an opposition party fundraising event last week, before Singapore's media regulator interrupted the showing and took the film, said Chee, the event organiser.
"After investigation, the Board of Film Censors (BFC) proceeded to serve a notice to the appropriate person that it would be an offence to screen a film that has not been submitted to the BFC for classification and that is not approved for exhibition," Tan Chiu Kee of the BFC said in a statement late on Tuesday, adding that a copy had been handed to officials.
Singapore, which has been ruled by the People's Action Party (PAP) for over 40 years, bans the production and screening of all political films, imposing a maximum fine of S$100,000 ($73,260) or a jail term of two years on those caught.
Lee Kuan Yew, 84, is credited with policies that have been critical to making Singapore one of the region's most prosperous countries, but has been criticised by human rights groups for his use of lawsuits against political opponents and the media.