Saito said he was shocked by the test results, insisting he had never taken a steroid and there was no need for him to use a masking agent.
Saito has tested positive for acetazolamide, a diuretic, in an out-of-competition check, and "accepted on a voluntary basis to be provisionally suspended and to leave the Olympic Village", according to a CAS statement.
"I have never thought about using illegal substances", he said.
The positive test recorded by Saito, 21, is the first ever by a Japanese athlete at the Winter Olympics.
Saito has been given a provisional suspension from professional skating while an investigation into the positive drugs test is carried out.
The Winter Olympics in Pyeongchang reportedly had its first failed doping test.
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According to a source who previously worked as a staff member for the Japanese team at a Winter Olympics, Saito was listed as an alternate for the 5,000-meter relay and there was the high probability even before the CAS announcement that he would not have competed in Pyeongchang.
The IOC and anti-doping authorities have stepped up testing for the Pyeongchang Games following revelations of a state-sponsored doping scheme at the last Winter Olympics in Sochi, Russia in 2014. The delegation chief said once the Olympics are done, it will move to clear the athlete's name.
He was expected to compete in the relay's second heat Wednesday, but the International Olympic Committee, which tests athletes, found the drugs before he participated in any events.
In a statement to the Japanese news agency Kyodo, Saito strongly deniedhaving knowingly taken Acetazolamide, saying he was "extremely shocked by the test results that have come back".
Japan's short track speed skating head coach Tsotomu Kawasaki added: "I feel the same way as the athlete: I am surprised and dismayed, this is all I can say about this".
In October, a university wrestler tested positive for a banned substance, drawing a two-year ban and the month before that, a collegiate swimmer also tested positive and was hit with a seven-month suspension.